What the CARES Act Means for Your Qualified Retirement Plans
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law.
While most of the law is devoted to providing economic relief for businesses, a few provisions change some of the rules for retirement plans. This presents possible relief opportunities to explore as well.
Importantly, The CARES Act allows qualifying individuals to seek tax-advantaged financial relief through distributions and loans from their retirement savings accounts. Here is a summary of important topics to discuss with your third-party administrator or Lurie advisor.
The bill permits distributions from “eligible retirement plans” to “qualified individuals” of up to $100,000 to assist with the financial burden associated with COVID-19. These distributions will not be subject to the 10% early withdrawal penalty. A “qualified individual” is someone who meets any of the following criteria:
• The individual has been diagnosed with COVID-19
• The individual’s spouse or dependent has been diagnosed with the virus;
• The individual has suffered adverse financial consequences as result of being quarantined, furloughed, laid off, having reduced work hours, being unable to work due to lack of child care or any other factor determined by the Treasury Secretary.
The Act permits individuals to self-certify that they meet one of the qualifications above. The distributions are subject to ordinary income tax and the income tax can be paid back over a 3-year period. All or a portion of the withdrawal can be redeposited within 3 years and treated as a rollover contribution back into the plan.
“Eligible Retirement Plans” include IRAs, qualified plans, 403(b) and 457(b)plans. It does not appear that defined benefit or money purchase pension plans will allow distributions prior to age 59-1/2.
Loan limit increase and delayed loan repayments
For the next 180 days, the loan limitation from a qualified plan is increasedto 100% of a participant’s vested balance up to $100,000. There is also a one year extension to the due date of a participant loan otherwise due between March 27, 2020 and December 31, 2020.
2020 Required Minimum Distribution Requirements
Required minimum distributions (RMDs) from 401(k) and profit sharing plans, IRAs, 403(b) plans and 457(b) plans are not required for 2020. This includes initial RMDs that are due by April 1, 2020. Defined Benefit Plansare still required to pay 2020 RMDs.
Defined Benefit Plan Funding Delay
The due date for any required contributions to defined benefit and cash balance plans for the 2019 plan year was extended from September 15, 2020 to January 1, 2021. Note that interest will continue to accrue on the minimum required contribution amount during this period.
We, at Lurie Wealth Advisors, are closely monitoring the financial and economic realities of today – and, importantly, proactively working with our clients to plan for the near term, and beyond.
The National Bureau of Economic Research (NBER) has not yet confirmed a recession resulting from COVID-19; however, it is not an understatement to say that this impact will be far reaching and likely last for quite some time. As investors, we should maintain our investment strategies and not allow emotions or short-term market swings to derail us from prudent decision making. Your financial advisory team is here to help you understand your options.
Although we are living in unprecedented times, investors should take comfort in knowing that markets have been through unprecedented times before. We are constantly “making history” and all things shall pass. Until then, as individuals and families, we all must do our part – and stay safe, together.
Please contact us today if you have questions. We are here to help.