Coronavirus Aid, Relief, and Economic Security (CARES) Act: Key Highlights of Retirement Plan Implications
The CARES Act will make additional retirement plan savings available to participants impacted by the Coronavirus. A quick overview of relief contained within the Act includes:
Coronavirus-related Distributions
10% early withdrawal penalty and 20% tax withholding waived -- IRAs, 401(k) plans, 401(a) plans, governmental 457(b) plans, 403(b) plans
$100,000 limit across all plans and IRAs
Option to have income taxed over three years
Ability to repay the distribution within three years to any plan or IRA (treated as a rollover contribution)
Need to have a personal diagnosis of COVID-19, a spouse or dependent diagnosed, or adverse financial consequences due to being furloughed, quarantined, or laid off or having paid work hours reduced due to coronavirus or reduction of business due to coronavirus.
Plans can be amended to allow for in-service withdrawals of coronavirus-related distributions without violating IRC provisions.
Coronavirus-related Loans
Applies to 401(k) and other 401(a) plans, 403(b) plans, and any governmental plans
Loan limit increased to the lesser of $100,000 or all of vested account balance
Loan payments due between the date of CARES enactment and year-end are delayed by one year
Suspension of Required Minimum Distributions (RMDs)
For 401(a), 403(a), 403(b) and governmental 457(b) plans and IRAs, temporary suspension of:
Annual RMDs due in 2020
Initial RMDs due to be taken before April 1, 2020
Participants who want to continue taking their distributions will be able to do so. If a distribution is made in 2020 that would have been treated as an RMD, it can be rolled over within the 60 day rollover rules.
Plan sponsor – ACTION REQUIRED
Plan amendments for coronavirus-related distributions, RMD waivers, and increased loan limits—all of which are optional—would be required by the last day of the plan year beginning on or after Jan. 1, 2022 (with an additional two years for government plans).
You might be asked by your administrator for affirmation that you want to elect these, or if no notification is received, they might make them available automatically. Do look for information regarding details on process and timing.
The CARES Act provides the Department of Labor with broad authority to extend the deadlines for certain notices. Stay tuned for more information.
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Additional Provisions impacting individuals include:
Tax payment changes (announced by Treasury ahead of the CARES Act)
Extension of the deadline to file taxes to July 15, which also applies to IRA, HSA and MSA contributions, as well as payments of the 10% penalty for premature distributions made in 2019
The period for 2019 employer contributions under Code section 404(a)(6) is also extended until July 15
Increase in limitations on deductions for charitable contributions by individuals as well as corporations
Individual Recovery Checks of up to $1,200 for qualified taxpayers, $2,400 for married couples filing a joint return, with a $500 increase for every child
Student loan relief
Loan payment deferral for six months
Allowance for employers to provide a student loan repayment benefit to employees on a tax-free basis
Retention of Pell grants for students who were forced to drop out of school due to Coronavirus
Flexibility for colleges and universities to continue work-study payments to students who cannot work due to Coronavirus closures
Relief for healthcare organizations covering supplies, COVID-19 testing and support for healthcare providers
Labor provisions including changes to paid and sick leave, and unemployment insurance
HSA changes All telehealth and other remote care services can be covered pre-deductible without violating federal rules for high deductible health plans paired with an HSA (for plan years that begin on or before 12/31/2021). Additionally, for expenses incurred after December 31, 2019, the CARES Act eliminates the rule that limits the use of HSAs to prescribed medicines or drugs.
Need help now? Want help in staying on top of all this? Contact us.