The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes a host of provisions providing relief for both individuals and businesses with respect to retirement plans, including expanded availability of hardship withdrawals and plan loans. Plan sponsors must amend the plan document to reflect these changes; without the amendments, the provisions would not apply. The amendment is not due until 2022, even though participants can take advantage now, and some record-keepers are imposing these rules automatically unless the employer opts out quickly.
For those who do adopt the amended changes, expect to see:
Hardship Distributions Rules Eased
For those affected by COVID-19 (diagnosed, furloughed, quarantined, child-care issues, pay reduced, etc.), one is permitted a hardship distribution from his or her 401(k) or IRA:
- Of up to $100,000
- That waives the standard 10% early withdrawal penalty
- Allows income taxes on the withdrawal to be paid ratably over 3 years
- Allows option to repay the withdrawal back to the plan over next 3 years
- The normal mandatory 20% withholding rules do not apply
Plan Loan Provisions Loosened
For all plan participants the plan’s loan provisions are expanded:
- Increases loan limits to the lesser of 100% of vested account balance or $100,000 (using normal calculations).
- If a participant currently has an outstanding loan, repayments can be deferred for a year (up until 12/31/2020)
Temporary Waiver of Required Minimum Distribution (RMD) Rule
Required Minimum Distributions for 2020 are waived. This also applies to IRA accounts.
For detailed information on how plan participants and sponsors are affected by the CARES Act changes to retirement plans, contact your ShindelRock tax professional or Dan Bolda at [email protected] [1].
Dan Bolda is President of Michigan Pension & Financial [2], where he handles responsibilities for delivering fiduciary services, plan design, and investment management as well as conducting individual meetings with clients and participants. Dan is authorized to practice before the IRS as an Enrolled Retirement Plan Agent (ERPA), and has attained the Qualified Plan Administrator (QPA) designation from the American Society of Pension Professionals and Actuaries (ASPPA). He also holds Certified Financial Planner (CFP®) and Accredited Investment Fiduciary (AIF®) certifications.