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The CARES Act – How Latest Legislation May Affect You

By Bill Schiffman & Rc Arseneau

We understand that there is an overwhelming amount of information and emotions that you may be processing right now and have intentionally chosen not to overwhelm you with messages simply for the sake of activity. However, the recently passed CARES Act does include some financial provisions to provide timely flexibility in the use of retirement monies that many could benefit from and likely have questions on specifics. For that reason we have boiled down some of the key points below for your convenience.

Elimination of Early Withdrawal Penalty: The CARES Act Waives the 10% early withdrawal penalty for withdrawals up to $100,000 from qualified retirement accounts for retirement plan participants who qualify. Income tax on the distribution would still be owed but could be paid over a three-year period. Repayment or “recontribution” of the funds can also be made within three years of taking the distribution. The mandatory 20% tax withholding will not apply during this time.

RMD Changes: Required Minimum Distributions (RMDs) may be waived in 2020 (including those who had not yet received their first distribution if they turned 70 ½ in 2019). A plan or IRA beneficiary receiving distributions over a 5-year period will be able to waive the distribution for 2020. 

Increase in the Retirement Plan Loan Amount: Plan loan dollar limits will be temporarily increased to the lesser of $100,000 or 100% of the participant’s vested balance (applies to loans taken within 180 days of the enactment). There is also a one-year delay for loan repayments due in 2020 with subsequent payments adjusted to take into account the delay. Loan durations (including the 5-year maximum) may also be disregarded during this period, if payments are delayed.Retirement Plan Changes: Plan amendments for coronavirus-related distributions, RMD waivers, and increased loan limits—all of which are optional—would be required by the last day of the plan year beginning on or after Jan. 1, 2022 (with an additional two years for government plans).

Defined Benefit Plan Changes: Single-employer pension plan funding relief by delaying minimum required contributions to Jan. 1, 2021. Plan sponsors may elect to treat the plan’s funding percentage (AFTAP or adjusted funding target attainment percentage) for plan years which include the 2020 calendar year the same as the funding percentage for the last plan year ending before Jan. 1, 2020 (with interest applying to late contributions).

Several of these changes may or may not apply to your specific situation, but it is likely they may apply to someone you know. Please feel welcome to pass along this information to anyone you feel may benefit from it. We are here for you, as always, to discuss these changes or any other concerns you may have. Stay well!

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