CARES Act Retirement Plan Provisions – Part 1
On March 27th Congress passed, and President Trump signed the rescue bill related to Coronavirus. The CARES Act has a massive amount of economic stimulus for our country to help workers and small businesses find fast financial relief. In this post I will give an overview of just a small portion of the bill related to access and tax relief for retirement plan participants.
During 2020 you may access up to $100,000 from your 401k, 403b, 457, IRA, or other retirement plan if you were impacted by the pandemic. The withdrawal must be because you, or your spouse, or your dependent were diagnosed with COVID-19. The withdrawal could also come as a result of quarantine, employer / business closure, layoff, reduction in work hours, or because you were unable to work because of a loss of childcare. IRS may later approve other reasons for the withdrawal.
If you take a distribution from your plan it will not be subject to the 10% early tax penalty. The distribution is not subject to mandatory withholding of tax (normally 20% from employer retirement plans), and you are able to pay it back into your account over 3 years (referred to as a “roll-back”). The distribution, if not rolled-back, will be subject to regular income tax, but you will be permitted to spread the income out over 3 years.
The CARES Act also gives increased access to loans from your employer retirement plan (401k, 403b, 457, etc). Assuming your plan allows for loans, the maximum plan loan is increased from $50,000 to $100,000. You may now access up to 100% of your vested balance, and repayments may be delayed by 1 year.
It should be noted that access to retirement funds should still be viewed in an emergency context. The recent market decline does not make it an attractive time to be selling invested assets.
We will continue to review the new law and its provisions that may help you. If you have questions about your individual circumstances, please reach out to our office.
Jared Walsh CFP®, CPA
Shawn Goetz, CRPC®
Reservoir Wealth Management