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Retirement Updates Amid COVID-19

Virus

The Coronavirus Aid, Relief and Economic Security (CARES) Act provides aid for individuals and businesses in need. The Internal Revenue Service (IRS) has published information on the specific retirement provisions in Section 2202 of the act. See the link here

The information from the IRS provides insight into which individuals may benefit from the additional aid that is available to individuals and businesses. It also details plans and accounts that are covered in the provision.

Retirement Account Rules Established by the CARES Act

The CARES Act outlines that up to $100,000 in Coronavirus-related distributions can be withdrawn from specific retirement accounts. These distributions must have been withdrawn between Jan. 1, 2020 and Dec. 20, 2020, and the individual must have been affected by COVID-19 in specific ways. The distributions must be taken from 401k, 403b and IRAs. The CARES Act waives the normal 10 percent penalty that is incurred for individuals under the age of 59.5 that withdraw funds from these accounts.

The CARES Act also states that affected individuals may take loans up to $100,000 from their employer-sponsored retirement plans as well. These loans must be entered into by Sept. 22, 2020. 

Qualified Participants for COVID Retirement Payouts

The IRS has stated that someone is eligible for the expanded access that is summarized in Section 2202 if they, their spouse, or their dependent was diagnosed with COVID-19 using an approved test from the Centers for Disease Control and Prevention (CDC) or has experienced financial hardships related to COVID-19. The associated financial hardships can include the following scenarios: 

● The participant has been quarantined, furloughed, laid off, or has experienced a reduction of work hours due to COVID-19;

● The participant has been unable to work due to the lack of child care caused by COVID-19; or

● The participant has had to reduce business hours or close a business the participant owns or operates due to COVID-19.

An individual who falls within any of these categories is eligible for the expanded distribution and loan options available under the CARES Act.

Additional Benefits for Individuals of Retirement Age

In addition, the CARES Act also offers temporary suspension of minimum distributions from 401k, 403b and IRA retirement accounts. Normally, an individual who reaches the age of 72 is required to take out a minimum distribution to ensure that retirement funds are utilized. This particular provision is not limited to retirees who are impacted by COVID-19. It also applies to: 

● individuals who turned 70.5 in 2019 and are account holders who did not take their RMDs in 2019,

● individuals who are 72 years old or older and are account holders, and

● beneficiaries of inherited IRAs for decedents who died before 2020.

Under this suspension, retirees are able to keep their money in the market longer. If someone has already taken their distribution, they may be able to redeposit the funds through rollover provisions. The typical 60-day rollover period has been extended under the CARES Act. 

A Word of Caution

Despite the various new options available under the CARES Act, it is important to carefully consider whether distributions should be taken in each individual account. There are tax implications to consider, and they will vary for each individual situation.

Schedule a Meeting

We know that times are difficult, and we want to help you choose the best course of action. When you schedule a meeting with our attorneys, you will meet with a diligent team of people who will help you evaluate these choices and more. Do not hesitate to call. We are more than happy to meet with you by phone or video conference if you prefer.

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