Last month, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. It was designed to provide liquidity to those impacted by the current economic decline as a result of the coronavirus. If you have been impacted, rules have been relaxed for your benefit. Here’s a breakdown of some of the provisions related to retirement accounts.
- All required minimum distributions (RMD) for retirement savings accounts have been suspended for 2020. It means, for those over 70 ½ years old by the start of 2020, you are not required to withdraw from your accounts. This includes all defined contribution plans such as IRA, 401K, 403(a), 403(b), and 457(b) accounts. This rule is designed to allow your account value to recover before withdrawing from it.
- If you have already taken RMDs for the year, you are able to roll some of them back into the account. Previously, RMDs were not eligible for rollover. However, with the CARES Act changes, amounts withdrawn can be rolled back into the account within 60 days of receipt. With that said, the account holder must comply with the one-per-12 month limitation applying to IRA rollovers. Non-Spouse IRA beneficiaries are not eligible to take advantage of this change.
- For IRA beneficiaries who opted for the 5-year rule, a one-year extension has been granted effectively making it a 6-year rule.
The above provisions apply to all retirement account owners whether impacted by the virus or not. However, for those who had the coronavirus, depend on someone with it or in some other way experienced adverse economic consequences due to it, the following are specific provisions for you.
- Coronavirus Related Distribution. For those under 59.5 years, the 10% early distribution penalty has been waived. You can withdraw up to $100,000. While your distribution will be taxable, you can spread the income over a three-year period after the first taxable year for the distribution. The distribution can be rolled back into the account over three years, also.
- Employer Plan Loans. Those with employer-sponsored retirement plans have always been able to borrow fifty percent of your vested balance or $50K from the account (whichever is less). The CARES Act allows borrowing of up to $100K for loans made up to 180 days after March 27, 2020.
The hope is you are only being inconvenienced by the virus. However, for those experiencing hardship due to it, the above and other CARES Act provisions should bring a level of stability to your situation. You are encouraged to consult your financial or tax professional before taking advantage of any of the above provisions as many involve complexity.