Retirement plan relief under the CARES Act
On Friday, March 27, President Trump signed into law a $2 trillion stimulus package known as the Coronavirus Aid, Relief and Economic Security (CARES) Act. Although not grabbing the major headlines, the CARES Act provides some important breaks respecting retirement plans.
Tax-Favored Treatment for Certain Coronavirus-related Withdrawals
Taxpayers under the age of 59 ½ may take coronavirus-related withdrawals from qualified plans, including IRAs, of up to $100,000 without incurring the 10% penalty for early withdrawal. These withdrawal amounts may be repaid (in one or more payments) to the plan/IRA at any time during the 3-year period following the withdrawal. Any such repayments will be treated as a tax-free rollover. Amounts not so repaid will be included in taxable income but may be so included and taxed over 3 years.
A withdrawal is deemed coronavirus-related if you, your spouse or a dependent is diagnosed with the virus or suffered specified economic hardships due to the virus, including having been quarantined, laid off or forced to work fewer hours because of the virus, being unable to work due to lack of childcare due to the virus, or having to close or reduce the operation of your business due to the virus.
Waiver of RMDs
Required Minimum Distributions (RMDs) for certain plans (including 401(k)s and IRAs) are waived for 2020. This waiver applies both to those who have been receiving annual RMDs and those who turned 70 ½ in 2019 but deferred the first RMD until April 1, 2020. No RMD need be withdrawn in 2020. If you already took an RMD in 2020, you may roll it over to your plan within 60 days of the withdrawal. It is uncertain at this time whether you may do a rollover if 60 days has already elapsed since the withdrawal.
Loans from Qualified Plans
Prior to the CARES Act, all loans from qualified plans were limited to the lesser of $50,000 or half the account balance. You may now take a loan of up to the lesser of $100,000 or the entire plan balance during the 180-day period beginning on March 27 (the date the Act was enacted). If you have an existing loan from your plan, any payment due in 2020 may be deferred for 1 year.
Our attorneys are here to help if you have questions about the CARES Act or other repercussions stemming from the COVID-19 pandemic. You can reach our Estate and Tax Planning team here.