April 14, 2020 Update: How the CARES Act Affects Retirement Planning

Beth Misak |
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By Paul Hynes, CFP® and Karen Clapp

There are significant provisions related to retirement funds within the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020. These provisions are designed to allow you to pay fewer taxes or, defer taxes if you prefer. Let’s review some of these advantages.

Required Minimum Distributions Waived for 2020

The CARES Act waives required minimum distributions for retirees for 2020 for all types of retirement accounts and plans, including IRAs. For those who have already taken their 2020 RMDs but do not currently need the funds, there is a 60-day window to roll the funds back to an IRA or company plan and avoid the income tax.

Early Retirement Account Withdrawals due to COVID-19 Hardship

If you, a spouse, or a dependent are diagnosed with COVID-19, or you have financial challenges due to being laid off, furloughed, or quarantined; having work hours reduced or due to a business closure, the CARES Act offers the following benefits:

  • The 10% early withdrawal penalty is waived from IRAs and company plans for COVID-19 withdrawals up to $100,000
  • The income tax owed can be paid over three years
  • The amount of COVID-19 withdrawals can be repaid within three years and will not be subject to income tax.

Retirement Plan Loans

For those individuals who qualify for COVID-19 hardship relief, the CARES Act offers expanded provisions regarding loans from qualified retirement plans:

  • For retirement plans that allow loans, the maximum limit is increased to 100% of the participant’s vested balance in the plan up to $100,000
  • Participants with outstanding loans may delay repayments normally due between March 27, 2020 (the CARES Act enactment date) and December 31, 2020 for one year, with the maximum repayment period of the loan also extended for one year

Extended Deadline for 2019 IRA and Roth IRA Contributions

The Treasury has extended the federal tax filing deadline to July 15, 2020. The deadline for making 2019 IRA and Roth IRA contributions is also extended to July 15, 2020.

Let us know if you want to talk further about these retirement-related matters or any other financial concerns. We’re here to help you evaluate your options. Keep in mind, however, that we don’t provide tax advice and some of these rules are fairly complex. So, please consult with your tax advisors before taking any action.