By Ashley Stilwell
Retirement plan sponsors and participants were given some additional retirement planning relief via the Coronavirus Aid, Relief, and Economic Securities Act (CARES Act), passed on March 27, 2020. Below are some key optional provisions included in the CARES Act related to retirement plans.
Required Minimum Distributions (RMDs)
RMDs are annual distributions required for retirement plan participants once they reach the age of 70 ½. The CARES Act suspends the requirement for the 2020 calendar year.
Existing Loan Payments
This optional provision was established to give qualified individuals with outstanding loan balances the flexibility to delay payments due between March 27, 2020 and December 31, 2020 by one year.
Increase in Loans
This optional provision gives plan participants retirement planning relief by increasing the value of a loan a qualified individual can take out. Loans are increased from the lesser of $50,000 or 50% of a retirement plan participant’s vested account balance to the lesser of $100,000 or 100% of a participant’s vested account balance. This increase applies to loans taken out between March 27, 2020 and September 22, 2020 (a 180-day period).
The optional early distribution provision permits qualified individuals to take early retirement plan distributions up to $100,000 between January 1, 2020 and December 31, 2020. The distributions are not subject to the 10% early withdrawal penalty and retirement plan participants can make contributions (up to the distribution amount) for a 3-year period to an eligible retirement plan. If the participant makes contributions to an eligible retirement plan during the 3-year period, the distribution will be treated as an eligible rollover distribution. If the participant does not repay their early distribution over this period, it will be included as income and taxed over a 3-year period beginning with the tax year of the distribution.
A retirement plan participant is considered a qualified individual and eligible for the loan and distribution elections if they meet the following criteria:
- Individual or their spouse or dependent is diagnosed with COVID-19
- Experience adverse financial consequences including quarantine, furlough/lay off, reduction in work hours, inability to work due to lack of childcare as a result of COVID, or closing or reduction of hours of a business owned or operated by an individual due to COVID-19.
If the retirement plan sponsor wishes to adopt the optional provisions included in the CARES Act, they may retroactively amend their plan agreement to include the distribution and/or loan provisions on or before the last day of the plan year beginning on or after January 1, 2022, but must have operated the plan as if the amendments were in effect from their effective date.
If you have questions about how the CARES Act optional provisions impact you as either a plan sponsor or a plan participant, or how to capitalize upon these retirement plan relief options, reach out to your Untracht Early advisor for more information.