CARES Act – Use of IRA and Retirement Plan Funds

We previously sent you information on individual and small business relief due to the COVID-19 crisis. In addition to direct payments and small business loans, the CARES Act also allows for some provisions to access to IRAs and retirement plans. Below is a summary of the provisions that deal with retirement accounts:

Extended Contribution Date

  • The IRS has extended the tax deadline for filing 2019 returns and payment of taxes from 04/15/2020 to 07/15/2020. 2019 IRA and HSA contributions are also being extended until 07/15/2020.

Waiver of 10% Early Withdrawal Penalty for distributions made before age 59.5 for coronavirus-related distributions up to $100,000 per individual. This limit is applied across all retirement accounts. IRAs and plans will be combined to reach the $100,000 limit.

  • The penalty waiver applies to distributions from IRAs, 401(k), 401(a), 457(b) and 403(b) plans.
  • Distributions are still taxable, but the tax can be spread out over 3 years. A distribution can be repaid within three years of the date of distribution to any plan or IRA to which a rollover contribution can be made. Repayments will be treated as rollover contributions. Distributions do not have to be repaid, it is optional and amended tax returns may need to be filed if repayments are made in subsequent years.
  • A coronavirus-related distribution includes any distributions made in 2020 to a person who has one of the following:
  • A personal diagnosis of COVID-19
  • A spouse or dependent who has been diagnosed with COVID-19
  • Adverse financial consequences due to being furloughed, quarantined or laid off or having paid work hours reduced due to coronavirus or the close or reduction of a business due to coronavirus.

Increased Plan Loan Limit and Extension of Repayment Period

  • A Qualified loan is any new or pre-existing loan to a person who would be eligible to receive a coronavirus-related distribution.
  • The maximum loan amount for loans is increased from 50% of vested balance up to $50,000 to 100% of vested balance up to $100,000.
  • Allow participants to delay repayment of a loan for up to one year.
  • You have up to 180 days from date of enactment of this bill to take out a plan loan.

Temporary Waiver of RMDs

  • Any RMD required to be made in calendar year 2020 is waived. This includes RMDs due as a death benefit in accordance with the 5 and 10 year rules, and those time limits are extended by one year.
  • If a distribution is made in 2020 prior to this legislation that would have been treated as an RMD but for the 2020 waiver, it can be rolled over in accordance with the 60-day rollover rules. We anticipate that the 60 day rule may be extended to include all distributions taken during 2020 but we don’t have this guidance yet. If you have taken an RMD within the past 60 days, let us know if you would like to put the money back into the IRA.If you haven’t taken your RMD for 2020, please let us know if you wish to not take your RMD for 2020 so we can stop these automatic payments.
  • Applies to IRAs, 401(k), 403(b) and 457(b) plans.

We hope everyone is staying safe and healthy during this unprecedented tragedy. Please give us a call if you have any questions regarding these new provisions.

The Ahrens Investment Partners Team