The CARES Act made significant changes to retirement planning for 2020 and beyond, including providing new emergency sources of funds for qualifying individuals. Specifically, the CARES Act made the following changes:
- COVID-19 Withdrawal: Under the CARES Act, you can take a hardship withdrawal of up to $100,000 from your 401(k) or IRA without paying the 10% early withdrawal penalty if you are under age 59 ½. You will, however, still have to pay income taxes on the withdrawal, but those income taxes will be spaced over 3 years (unless you elect to take them all in 2020). You also can potentially repay the withdrawn amounts during the three (3) year period, resulting in less income tax due.
- Increased 401(k) loans: If you 401(k) plan allows participant loans, the CARES Act expands the total loan amount to the lesser of $100,000 or 100% of the 401(k) account balance. Any loans taken out under the revised rules must be initiated between March 27, 2020 and September 23, 2020. For individuals with existing 401(k) loans, the CARES Act allows payments under the loans to be suspended for 2020, and to restart in 2021, effectively adding a year to the repayment period for existing 401(k) loans.
- No Required Minimum Distributions (RMD’s): Under the CARES Act, you have the ability to suspend your Required Minimum Distributions (RMDs) from your retirement accounts and IRAS in 2020. Distributions from an inherited or beneficiary IRA can be suspended as well. This is an outright suspension, and RMDs not taken in 2020 will not need to be made up in future years.
Virtus Law, PLLC continues to monitor developments in this (and other COVID-19 areas) and will continue to post relevant updates to this website.