The CARES Act Impact on Retirement Plans
The CARES Act allows those who have suffered hardship or economic distress due to the COVID-19 outbreak a chance to lessen their financial burdens by increasing benefits, adding rebates, waiving fees and allowing easier access to certain accounts. The following provisions of the CARES ACT may provide individuals with retirement plans several options to access and manage those accounts. With respect to employer retirement plans, these provisions are discretionary, not mandatory. Please consult with your employer to determine how this may affect your retirement plan.
Required minimum distributions (RMDs) from IRAs, 401(k)s, 403(b)s and other retirement plans have been waived for 2020. The waiver includes RMDs for those who turned 70 ½ in 2019 and would be required to take their first RMD by April 1, 2020. Combined with the Secure Act, which pushed the RMD age to 72, this has effectively pushed the initial RMD back several years for those who turn 70 ½ in 2020.
For those who have already taken their 2020 RMD, this can be undone by doing an eligible roll over. If you took your RMD within the past 60 days, you can redeposit it into the IRA or employer retirement plan without any consequence—although the IRS may extend the 60-day limit. RMDs made before January 1, 2020 cannot be undone.
It’s important to note that the 60-day rule can only be used once within 12 months—there cannot be any IRA-to-IRA or Roth IRA-to-Roth IRA rollovers in the past 12 months of the receipt of the 2020 RMD. Non-spouse beneficiaries who have taken their RMD from an inherited IRA will not be able to undo RMDs already taken.
The CARES Act allows individuals to take early withdrawals of up to $100,000 from retirement plans without paying the 10% penalty. To qualify for this waiver, you must be a "qualified individual" defined as a participant that meets at least one of the following criteria:
- You, your spouse or your dependent are diagnosed with COVID-19
- You experience financial consequences as a result of the pandemic, such as furlough, reduced work hours, inability to work due to childcare, job loss or business closure.
- Other factors as determined by the Secretary of the Treasury.
Although the income taxes associated with the distribution will still apply to those who take advantage of this waiver, the liability can be paid ratably over the next three years. Additionally, you are allowed to rollover the amount of the distribution back into a plan or IRA over the next three years. Those repayments can be made without regard to the standard retirement plan contribution limits.
The Cares Act increases the limits that can be borrowed from an employer retirement plan by "qualified individuals" from the lesser of $50,000 or 50% of your vested interest balance, to the lesser of $100,000, minus the highest outstanding loan balance during the prior 12 months, or 100% of the balance. This relief applies to loans taken within 180 days from the CARES Act’s date of enactment (March 27, 2020 - September 23, 2020)
If you have an outstanding plan loan and are a "qualified individual", any repayments that are normally due between the CARES Act enactment date and December 31, 2020 can also be delayed for one year. As a reminder, loans are NOT allowed from IRA or Roth IRA accounts.
The date for making 2019 IRA and Roth IRA contributions has been extended to July 15, since the Treasury has extended the 2019 income tax return filing date from April 15 to the same date under the CARES Act. Additionally, the extended deadline applies to 2019 Health Savings Account, Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.
With respect to employer retirement plans, these provisions are discretionary, not mandatory. Please consult your employer to determine how this may affect your retirement plan. For further help with your employer retirement plan, contact a trusted member of the Busey Wealth Management team, who can help you navigate these unprecedented times with clarity and assurance.