Retirement Plan Provisions Under the CARES Act

April 6, 2020 - 1:55 PM
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). It is the third of three major bills providing economic assistance, strengthened unemployment assistance and health care funding. Included are a variety of tax provisions intended to provide an economic stimulus to both businesses and individuals. The following is intended to offer a brief description of one of the more important, and most likely universal applicability of these tax provisions targeting individual relief – that being those related to IRA’s and other retirement plans. 

Required Minimum Distributions (“RMDs”)
The required minimum distribution for calendar year 2020 is waived for IRAs and defined contribution plans. In 2021, RMDs will resume, applying the new tables being created under the SECURE Act passed in December of last year. This is not a postponement but a complete 2020 waiver. Taxpayers will not be required to take two RMDs in 2021. The new triggering age for RMDs, set by the SECURE Act, remains at 72. This includes inherited and traditional IRA’s.

Should everyone waive taking the RMD for 2020? Not necessarily. Run the numbers. How do withdrawals affect your tax bracket? If 2020 puts you in a lower tax bracket – take the RMD. If you are in the same brackets and you don’t need cash, you may want to keep those dollars inside the plan to continue to grow tax deferred, hopefully to regain some of the losses suffered this year after the markets collapsed, and especially if your RMD is based on 12/31/19 market values.

If you already took the 2020 RMD, you can choose to include in income and pay the tax; or you can use the 60-day rule to return the distribution to the retirement plan without tax consequences. If you are outside the 60-day window or took a distribution from an inherited IRA, there may be future rules or clarification coming from the IRS instructing how this can be accomplished. Consider doing a Roth conversion with the dollars that would have been your RMD (and perhaps more). If you turned age 70 ½ in December 2019 and were told you didn’t have to take your 2019 RMD until April 2020, you get a special break. Both the 2019 and 2020 RMDs are waived. Also, if you have set up your IRA with an automatic withdrawal of your RMD, typically at year end, consider canceling that.

Withdrawals Other Than RMD’s.
A distribution from an IRA or other retirement plan to a person younger than 59½ is usually subject to both income taxes and a 10% penalty. There are now special rules for 2020 coronavirus-related distributions and how they can be repaid or taxed.

An individual may withdraw up to $100,000 from his or her 401K, IRA, certain deferred compensation plans and other tax-deferred retirement plans without a 10% penalty if the person is a “qualified Individual.” The time frame for taking such distributions runs from 1/1/20 – 12/31/20, and multiple distributions are allowed. A “qualified individual” is a person (1) who is diagnosed by a test with COVID-19, or (2) whose spouse has been so diagnosed, or (3) who experiences adverse financial consequences as a result of facts including, but not limited to, being quarantined, furloughed, laid off, unable to work due to lack of child care or experiences closing or reduced hours of a business owned by him.

The distribution can be contributed back to the retirement plan at any time during the 3-year period beginning on the day after the date the distribution was received by the taxpayer. It will be treated as a tax-free rollover. This avoids all income tax on the distribution. If the distribution is not contributed back to the IRA or plan, the distribution will be taxed ratably over the 3-year period beginning with 2020. A taxpayer must elect out of this provision if he intends to re-contribute the withdrawal to the plan.

Loans From Plans
Defined contribution plans such as 401(K)’s may already permit loans to participants. The current rules limit loans to the lesser of $50,000 or one-half of the plan balance. For the period beginning March 27, 2020, and until September 27, 2020, the permissible amount of the loan is increased to the lesser of $100,000 or 100% of the plan balance. Payments on loans existing on March 27, 2020 can be deferred for one year.  However, the $100,000 is the limit in the aggregate amount of loans that can be outstanding. Therefore, if you have outstanding already, for example, a $25,000 loan from your plan, you may only borrow another $75,000. Loans are not permitted from IRAs.

If you have questions, or would like additional information, please contact Joel Luber, Chair of Reger Rizzo & Darnall’s Estates & Trusts Group,  at 215.495.6519, or via email at

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