The Coronavirus Aid, Relief and Economic Security (CARES) Act is a stimulus bill that will inject the economy with two trillion dollars and provide relief to individuals and businesses that have been impacted by the coronavirus pandemic.
There are numerous provisions in the bill that can impact retirement plan participants and sponsors.
Required Minimum Distributions (RMDs):
The CARES Act waives RMDs that are required to be paid in 2020. This also includes anyone’s first RMD that is attributable to 2019. If you have already received an RMD in 2020, you can elect to roll it over and defer paying taxes on it.
This may be a good strategy for you because your 2020 RMDs are calculated using the balance in your retirement account as of December 31st, 2019. Since the market has significantly dipped since then, taking your RMD now may cause a disproportionately large taxable distribution. It also gives your account another year to recover from recent volatility in the market. Talk to your advisor before making changes to your RMD schedule.
Participant Withdrawals and Loans:
If allowed by the plan, participants may be able to withdraw up to $100,000 from their retirement plan until December 31st, 2020 without accruing penalties.
Plan loans (if allowed by the plan) have also increased to the lesser of $100,000 or 100% of the participant’s vested balance. This only applies to loans made on or before September 23, 2020. If you already have an outstanding loan, your repayments may be delayed for up to one year, subject to plan approval.
In order to be eligible for such a withdrawal or loan, the participant, participant’s spouse or dependent must have been diagnosed with COVID-19, or suffered other adverse financial consequences due to COVID-19 such as furlough or loss of business.
We highly recommend speaking to your advisor before taking a loan or withdrawal from your retirement plan. Taking money out during a bear market can be very expensive and is rarely a good idea for a client.
The above provisions may be used immediately but the retirement plan must be amended to formally include these options no later than the last day of the first plan year beginning on or after January 1, 2022.
If you are a plan sponsor and you would like to include these provisions in your retirement plan, please speak to your advisor.
Defined Benefit Plans:
The CARES Act includes a delay in contribution deadlines for defined benefit plans. Any contribution due in 2020 now has the due date of January 1, 2021. Employers must pay interest on delayed contributions.
As always, we’re here for you. If you have any other questions, please feel free to send us a note below or call us at (410) 363-7211.
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