In recent weeks, the entire country has had to change how we live, work, educate and even shop for groceries because of the coronavirus (COVID-19) pandemic. You might be wondering how it is going to affect the future as well, including your retirement plan administration. Enter the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which was signed into law in late March 2020.
This act addresses, among other things, retirement plan administration, including things like 401(k) loans and other emergency measures.
As people lose their jobs, businesses and accept pay cuts and furloughs, there are new challenges appearing daily because of the coronavirus. Is there any relief available? And if so, what?
The CARES Act does make provisions for retirement plan administration. Until the end of 2020, the CARES Act opens the door for new ways to take money from your retirement accounts like IRAs or 401(k) plans if you have been affected by coronavirus (COVID-19).
These withdrawals won’t be subject to penalties, like the 10% early withdrawal penalties and you can also repay the money taken out over a three-year period.
You can’t take out more than $100,000 per eligible participant though and you’ll still owe income tax.
These benefits may be offered by plan sponsors. Each plan sponsor will need to evaluate if they are going to amend the legal documents for the plan to allow these provisions.
To be eligible under the CARES Act, you have to meet certain criteria:
- Diagnosed with coronavirus (COVID-19)
- Your spouse or dependent was diagnosed with coronavirus (COVID-19)
- Coronavirus (COVID-19) has caused you financial hardship in some way (a furlough, layoff, hours cut, cannot work due to childcare issues, etc.)
There is also loan relief for some individuals under the CARES Act. If you meet the above criteria, you can borrow up to $100,000 and loan payments for the rest of 2020 are suspended. After that, there will be new terms for repayment and there will be more details on this in the coming months.
Experts are still working out the details of the CARES Act and there are some uncertainties, so it’s best to talk to your plan administrator or a financial advisor if you need financial relief.
Taking money out of your retirement plan savings can have long-term impacts – even if you just take a small portion of your savings.
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If you have other questions about retirement plan loans, email us or call 937.308.0758.
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