The Coronavirus,
Aid, Relief and Economic Security (CARES) Act, signed into law by President
Trump, includes several key provisions that we believe will positively impact
your retirement plans (IRA's, 401k's, etc.) and plan sponsors. The following
FAQs highlight some of the most salient relief measures.
Are plan
participants impacted by COVID-19 able to access their retirement funds? Yes, if allowed by the plan, certain
participants may withdraw, penalty free, up to $100,000 between January 1, 2020
and December 31, 2020.
Who is eligible
for these withdrawals? To be eligible
to make such a withdrawal, the individual participant, or his or her spouse or
dependent, must have been diagnosed with COVID-19, or the individual suffered
adverse Financial consequences due to COVID-19 (e.g., furlough, reduction in
hours, unable to work due to childcare, loss of business, etc.).
Have participant
loan limits been adjusted?
Yes. If allowed by the plan, the loan limit can be increased to the lesser of
$100,000 or 100% of the participant's vested account balance. This only applies
to loans made on or before September 23, 2020 (180 days following enactment of
CARES) and is only for individuals that meet the same conditions outlined for
the withdrawals noted above.
What about
outstanding loans? Subject to plan
approval, scheduled participant loan repayments due from March 27, 2020 (the
enactment of CARES) through December 31, 2020, may be delayed for up to one
year for qualifying employees. Interest continues to accrue during the period
and the plan can extend the term of the loan for up to one year.
Can a participant
who receives a COVID-19 distribution repay the amount into a qualified retirement plan? Yes, the
participant has three years from the day after the distribution was received to
repay the amount into a qualified retirement plan (or any other plan or IRA
that can accept rollovers). The distribution will be taxable if it's not
repaid, but it can be repaid over a three-year period, unless otherwise
elected.
Does the plan
sponsor need to verify whether an individual qualifies for a COVID-19 withdrawal
or loan? No, the plan
sponsor may rely on participant's certification for eligibility
Have there been
adjustments made for Required Minimum Distributions (RMDs)? Yes. The CARES Act waives the requirement for
any RMD that is required to be paid in 2020. This includes an individual's First
RMD which is attributable to 2019 (not paid by January 1, 2020). If an RMD has
already been received during 2020, then the participant may roll it over and
defer paying taxes, including rolling back into the plan. We expect the IRS to
extend the 60-day rollover period. Note that as a practical matter this applies
only to individual account plans.
Why does this
matter? An RMD is calculated
using the balance of an individual retirement account on December 31st of the
year prior to the date it must be distributed to a participant. The Dow Jones
closed at 28,538 on December 31, 2019. On March 27, 2020, the Dow Jones closed
at 21,636.78 - a significant decrease. An RMD calculated based on a December
31, 2019 value could lead to a disproportionate RMD relative to today's account
values, forcing a disproportionately large taxable distribution.
When do I need to
amend my plan for the changes to withdrawals, loans, and RMDs? While you can start utilizing any of these
provisions immediately, the plan must be formally amended for those new options
generally no later than the last day of the First plan year beginning on or
after January 1, 2022. Many, during their retirement years, rely on these
various distributions for income.
Your oXYGen
Financial Team is in tune with all the recent develops, continuing to monitor
changes and have assembled resources to help you Breathe Easier about life. If
you have any questions, please reach out to your Private CFO®.
If you would like to receive more information on making smart money moves for your future, be sure to contact us today!
