New Retirement Rules for COVID-19 Relief

The CARES Act allows early withdrawals, raises the limits on loans from employer plans, and waives required minimum distributions.

The new CARES Act, passed by Congress to ease the financial stress caused by the coronavirus pandemic, contains a number of provisions affecting distributions from retirement plans. Here are some of the key changes.

Early withdrawals. Individuals will be permitted to take up to $100,000 out of an individual retirement account (IRA) or employer plan such as a 401(k) or 403(b) plan, provided the distribution is a coronavirus-related distribution.

  • Generally, you qualify if you or your spouse or a dependent has been diagnosed with the virus, or if you have experienced financial hardship because of the virus. The hardship might be a result of being quarantined, furloughed, laid off, or losing childcare. Other hardships might qualify as well.
  • If you are not yet 59 ½, but you choose to take a distribution under the provisions of this new law, you will not be subject to an early distribution penalty.
  • You will still owe tax on the distribution, but you can spread the reporting of the income over three years of tax returns.
  • You are permitted to repay the distribution to the plan or IRA within three years, and if you do, the portion you repay will not be subject to tax.

Required minimum distributions waived. Required distributions from IRAs and certain employer plans will be suspended for calendar year 2020.

  • If you are taking required distributions from an IRA, whether from your own IRA or from an inherited IRA, you make skip your distribution for 2020.
  • Required distributions from defined contribution plans (like a 401(k) plan), annuity plans (403(a) and 403(b) plans), and deferred compensation plans (certain 457(b) plans) are not required for 2020.
  • If you turned 70½ in 2019 and haven't yet taken your 2019 distribution, you may forgo that distribution as well.
  • If you are taking distributions under the five-year rule, the year 2020 will not count as one of the five years.

Loans from 401(k) and other defined contribution plans. If you need a loan from an employer plan, the limits have been temporarily increased, and the repayment period has been extended for those who have been affected by the coronavirus. These rules apply to participant loans taken out by September 23, 2020.

For more information on the RMD waiver and returning distributions, read our new update on how to return an RMD.

Effective date: March 27, 2020