The recently enacted CARES Act contains several provisions related to retirement plans that can help with the financial hardship being caused by the COVID-19 crisis. If the plan adopts the optional provisions, an in-service participant who has been diagnosed with COVID-19, has a spouse or dependent that was diagnosed with COVID-19 or is experiencing adverse financial consequences due to quarantine, furlough, layoff, reduction in work hours or other factors due to the coronavirus emergency will have the following options available:
- A penalty free distribution of up to $100,000 if taken between January 1, 2020 through December 31, 2020 with the 10% withholding requirement waived for distributions from either IRA’s or employer sponsored retirement plans such as 401(k) plans.
- The $100,000 limit is aggregated across all plans (excluding defined benefit plans) and IRA’s held by the participant.
- Rollover of the coronavirus related distributions permitted within three years of taking the distribution.
- If any portion is not rolled over, the taxable portion may be included in the participant’s taxable income evenly over a three-year period.
- The participant will self-certify that the funds qualify for this treatment.
- 401(k) loan limits are temporarily increased to the lesser of $100,000 or 100% of the participant’s vested balance for loans taken between March 27th and September 23rd 2020.
- A one-year deferral is allowed for 401(k) loans in good standing that have repayments due in 2020, however interest will still accrue.
Not all retirement plans will choose to offer these options. Participants will need to contact their plan administrator for employer sponsored plans to see if these provisions have been adopted. IRA account holders should contact their brokerage company or trustee for more information on this option.
There are also required changes that do not require adoption by the plan administrator:
- Required minimum distributions have been waived for the 2020 tax years for all participants in all plans except defined benefit plans
- Included in this waiver would also be any distributions for participants that turned 70 1/2 in 2019 who chose to delay their first distribution until 2020.
- If a participant has already taken their RMD in 2020 they can be paid back or rolled over within 60 days of the distribution.
- Required minimum contributions to defined benefit plans are delayed from September 15, 2020 until January 1, 2021 for single-employer pension plans, however interest will need to be added to such payments when the contributions are made.
- For New York State residents, hardship withdrawals are available for COVID-19 related expenses and losses due to NYS being declared a disaster area by FEMA. Residents of other states should check with their plan administrator.
Please contact us if you have any questions.