The CARES Act (Coronavirus Aid, Relief and Economic Security Act) was signed into law on March 27, 2020. The CARES Act is designed to provide support to Qualified Individuals who are experiencing financial consequence as a result of COVID-19. Qualified Individuals include those quarantined, laid off or subject to reduced hours or those unable to work due to lack of child-care as a result of COVID-19. Please find below a summary of the CARES Act provisions specific to Retirement Plans.
Just because these options are available does not ensure they are financially advantageous. Please consider not only your short-term needs but also your long-term Values & Goals, as well as alternate options, before proceeding. A consultation can help ensure your financial actions are aligned with your Values & Goals.
Retirement Plan Distributions to Qualified Individuals
- Permits in-service hardship distributions up to $100,000 during the period January 1, 2020 – December 31, 2020.
- Waives the 10% early distribution penalty
- Taxable, however, 20% federal income tax withholding can be ignored
- Distribution can be repaid to the plan within 3 years to gain tax-free rollover treatment
- Can recognize the distribution as taxable income spread over 3 years, effectively spreading federal tax obligations out over 3 years (state tax TBD).
Relaxed Retirement Plan Loan Rules for Qualified Individuals
- Permits Plan loans up to the lesser of 100% of the participants vested balance or $100,000
- Individuals with outstanding loans with a repayment due from the date of enactment of CARES through December 31, 2020 may delay loan repayments for up to one year.
Required Minimum Distributions Temporarily Waived
- Option to waive RMDs for the year 2020.
Most recordkeepers are providing a global amendment to retirement plans, making these options available as soon as administratively feasible, unless the Plan Sponsor elects not to include these options. Plan amendments for these provisions are not required until the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024 for governmental plans).
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This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services are offered through Global Retirement Partners, an SEC Registered Investment Advisor. Global Retirement Partners and Strategic Retirement Partners (SRP) are separate entities from LPL Financial.
Global Retirement Partners employs (or contracts with) individuals who may be (1) registered representatives of LPL Financial and investment adviser representatives of Global Retirement Partners; or (2) solely investment adviser representatives of Global Retirement Partners. Although all personnel operate their businesses under the name Strategic Retirement Partners (SRP), they are each possibly subject to differing obligations and limitations and may be able to provide differing products or services.