The CARES ACT – What It Means To Your IRA and Retirement Accounts

April 29, 2020
This alert briefly summarizes the following relief provisions enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted on March 27, 2020.
  • Temporary waiver of required minimum distribution (RMD) rules for certain retirement plans and accounts.
  • Temporary waiver of early distribution penalty from tax-qualified plans and special rules related to plan loans.

Temporary Waiver of RMD Rules for Certain Retirement Plans and Accounts

The CARES Act waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This applies even for taxpayers who turned 70 ½ in 2019 but deferred their first RMD to April 1, 2020.
  • RMDs that have already been taken in 2020 may be rolled over within 60 days of the distribution.

Special Rules for Use of Retirement Funds

Eligible individuals can withdraw up to $100,000 for coronavirus-related purposes from tax-qualified retirement plans during 2020 without incurring the usual 10% early distribution penalty.

  • Taxable distributions should generally be included in gross income ratably over a three-year period. Taxpayers may re-contribute the withdrawn amounts in one or more re-contribution payments to the qualified plan at any time within three years of the distribution. These repayments will be treated as a tax-free rollover and not subject to that year’s cap on contributions.

The CARES Act makes it easier to borrow money from 401(k) plans, raising the borrowing limit from $50,000 to $100,000 for the first 180 days after enactment, and by delaying the payment dates for any loans due the rest of 2020 for one year. (The CARES Act was enacted March 27, 2020; the 180-day window closes September 23, 2020.)