The CARES Act was designed to provide relief for American families, workers and small businesses, but a few provisions of the act have provided some financial relief to retirees and retirement savers. Here are three highlights of provisions related to retirement accounts.
Required Minimum Distributions Waived
Required minimum distributions (RMDs) are waived for 2020. Seniors and others who normally must take RMDs each year from their retirement accounts do not have to take them for 2020. The CARES Act waived RMDs for 2020 from IRAs and workplace retirement plans, such as 401(k) and 403(b) plans.
Penalty-Free Withdrawals
You can withdraw up to $100,000 penalty-free in 2020 from your IRAs and your workplace retirement plan, assuming the plan allows it, if:
- You, your spouse, or your dependent was diagnosed with COVID-19, or
- You experienced adverse financial consequences due to the virus, perhaps as the result of being quarantined, furloughed, or laid off, having your hours reduced, or being unable to work due to lack of childcare due to the virus.
The 10% early withdrawal tax penalty that normally applies to withdrawals before age 59 1/2 is waived for coronavirus-related withdrawals.
You can pay the income tax on the withdrawal over three years. You also have the option to recontribute all or part of the withdrawal within three years.
Borrowing Larger Amounts
Retirement plans that permit loans normally limit loan amounts to $50,000 or 50% of the vested account balance, whichever is less. The CARES Act doubles the loan limit, allowing loans up to $100,000 or 100% of the vested account balance.
If your retirement plan adopts the higher loan limit and you want to take advantage of it, the loan must be taken by September 22, 2020 and you must meet the coronavirus-related conditions described above for the withdrawals.
If you are interested in taking advantage of any of these provisions, consult your tax and financial professionals for advice. If you have any questions, we are here to help!