Cares Act Changes to Retirement Plans

There have been several changes in legislation making it easier for companies and individuals that participate in certain retirement plans to access money.

There are three important components that we would like our clients to be aware of; loan limits have been doubled, there is no 20% withholding, and 2020 required distribution rules have been removed.

Read further details below.

10% Early Withdrawal Penalty Tax Waived

Waives the 10% early withdrawal penalty tax under IRC Sec. 72(t) on early withdrawals up to $100,000 from a retirement plan or IRA for the following individuals:

• Those diagnosed with COVID-19
• Whose spouse or dependent is diagnosed with COVID-19
• Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced
• Those unable to work due to lack of child care due to COVID-19
• Closing or reducing hours of a business owned or operated by the individual due to COVID-19
• Or other factors as determined by the Treasury Secretary

The legislation also permits those individuals to pay tax on the income from the distribution ratably over a three-year period and allows individuals to repay that amount tax-free back into the plan over the next three years.

Those repayments would not be subject to the retirement plan contribution limits.

Retirement Plan Loan Limits Doubled

Doubles the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan.

Individuals with an outstanding loan from their plan with a repayment due from the enactment of CARES through Dec. 31, 2020, can delay their loan repayment(s) for up to one year.

Required Minimum Distribution Rules Waived

Temporarily waives of required minimum distribution rules for certain retirement plans and accounts.

This provision waives, for the 2020 calendar year, the required minimum distribution rules for certain defined contribution plans (not defined benefit plans) and IRAs.

The legislation also includes special rules regarding the waiver period to, in essence, hold harmless those individuals (and plans) who took advantage of the RMD waiver for 2020.Allowance of partial above-the-line deduction for charitable contributions and modification to limitations on charitable contribution during 2020.

This provision encourages contributions to charitable organizations during 2020 by permitting an above-the-line deduction of up to $300 for cash contributions, whether an individual itemizes their deductions or claims the standard deduction.

Originally Published on 3/27/20 by: EsinerAmper, LLP