Retirement Provisions in Coronavirus Aid, Relief & Economic Security Act

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law by President Trump on March 27, 2020, provides important economic stimulus as we navigate these challenging times. While the CARES Act addresses many different areas of relief, this summary focuses on the key provisions affecting qualified retirement plans and individual retirement accounts (IRAs).

TEMPORARY WAIVER FOR 2020 REQUIRED MINIMUM DISTRIBUTIONS (RMDS)

The CARES ACT waives RMDs for calendar year 2020 for defined contribution plans, including 401(k), 403(b) and 457(b) plans, as well as for IRAs and Inherited IRAs. This allows individuals to keep funds invested in their retirement plans and not pay taxes on distributions. It includes all RMDs payable in 2020, including 2019 RMDs that were deferred to 2020, except those from defined benefit plans.

While there are no repayment provisions in the CARES Act for RMDs that were already taken in 2020, we expect the IRS will provide additional guidance on this subject. For those who recently received their RMD and have not already had an IRA to IRA rollover in the last 365 days, all or part of the RMD taken might be rollover-eligible for IRA owners and spouse beneficiaries (but not non-spouse beneficiaries) if the funds are returned to an IRA within 60 days of receipt. Per IRS Notice 2020-23 the 60-day period was extended to July 15, 2020 for RMDs received since February 1, 2020.

These provisions are not needed for RMDs that were paid to qualified charities under the $100,000 Qualified Charitable Distribution (QCD) provision because those RMDs are not taxable.

ADDITIONAL RETIREMENT PROVISIONS FOR THOSE AFFECTED WITH THE COVID-19 VIRUS

Provided your plan permits, the following provisions are available in 2020 with self-certification that you, your spouse or a dependent is diagnosed with COVID-19; or if you experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care or closures related to the coronavirus pandemic, or other factors as determined by the Treasury Secretary.

• Hardship Distribution
  Individuals under 59½ years old may withdraw up to $100,000 from IRAs and 401(k) plans without the usual 10% early withdrawal penalty. The withdrawal is still subject to regular income taxes and the loss of tax deferral on future investment earnings, so it is something to evaluate thoroughly against other options. You are permitted to repay the withdrawal into your account during the 3-year period after receipt tax free. If not repaid, you may elect to spread the tax on the withdrawal over the next three tax years (2020-2022).
• 401(k) Loans
  Current 401(k) loan rules allow borrowing the less of $50,000 or 50% of the account balance. During the 180 days after CARES Act (until September 23, 2020), participants may borrow the lesser of $100,000 or 100% of account balance. The due date of all outstanding plan loans in 2020 is delayed by one year.

DEFINED BENEFIT PLAN FUNDING RULES

The CARES Act also provides defined benefit plans funding relief by allowing plan sponsors more time to meet their funding obligations, delaying the due date for any contribution due during 2020 until January 2, 2021. At that time, contributions originally due earlier would be due with interest.

If you have additional questions about your specific retirement situation and how these changes might affect you, please contact your AMG financial advisor or relationship manager.