CARES Act for Individuals- Retirement Plan access for Taxpayers

TPC planning and Tax teams

On Friday, March 27th President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law.

This legislation is being billed as the largest aid and relief act in the history of the United States, and is designed to support individuals and businesses as we all weather this Coronavirus 19 (CV19) storm.

To help support families struggling from job loss or income reduction, the CARES Act has the following provisions for those pre-59.5 individuals, or those over 59.5 seeking access to funds in an IRA or employer retirement plan.  These stipulations may also apply to those over 59.5 who have taken distributions in 2020 (i.e. an RMD) and are looking to roll those funds back.

Similar to exceptions made for areas that have experienced natural disasters, the CARES Act will all for “Coronavirus Related” distributions from retirement accounts.

  • You may withdraw up to $100,000 from a combination of your personal IRAs or employer retirement plans.
  • This withdrawal must be made by 12/31/2020 to qualify for this exception and is retroactive to any distributions made beginning January 1, 2020.
  • This distribution is exempt from the 10% penalty typically applied to distributions made before 59.5 years old.
  • Employer plans will not have required mandatory withholdings for these distributions.
    • Employer plans, by law, will not require substantiation of eligibility, but will operate using self-assertion from the withdrawing party.
  • While still considered taxable income, the taxes resulting from these distributions can be spread (evenly) over the next three tax years (2020, 2021, 2022).
    • You are allowed to report the full amount of the distribution in 2020 if you expect this to be a lower income year as a result of CV19 restrictions.
    • Note- it is either “all in 2020”, or “spread over 3 years”, not a combination.
  • There are rollover options for funds withdrawn as a “Corona Virus Related” distribution.
    • You can pay back the funds withdrawn within 3 years (the default time frame)
    • You can pay back partial “rollovers” over that three years, as needed and available.
  • The stipulations for eligibility of this distribution are:
    • You have been diagnosed with CV19
    • A spouse or dependent has been diagnosed with CV19
    • You have experienced adverse financial consequences as a result of quarantine, furlough, being laid off, or having work hours reduced.
    • You are unable to work during the “stay at home” restrictions on the basis of childcare needs.
    • You own a business that closed or operated under reduced hours during the CV19 restrictions.
    • “Other” reasons deemed permissible by the IRS (details not provided)

In addition to withdrawal allowances in the CARES Act, the following standards apply with respect to loans from an employer retirement plan (not IRAs which don’t allow loans, as they are still considered “prohibited transactions”):

  • The maximum loan amount permitted has been increased to $100,000 (up from $50,000).
  • If your balance is under $100,000, you may now be able to take a loan for up to 100% of your vested balance (up from 50%).
  • Payments on loans otherwise owed (those taken prior to this act) may now be deferred up to one year

We’re living in volatile times, and we’re ready to work with you to find the right path forward with respect to your 2020 cash flow needs.

  Please contact us with any questions you may have!

The Planning Center is a fee-only financial planning and wealth management firm. 

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