While much of the attention given to the recently enacted CARES Act revolves around the cash payments to individuals and loans to small businesses, there are several other provisions that may impact you.
Temporary Waiver of Required Minimum Distributions (RMDs)
RMDs are waived during 2020 for defined contribution retirement plans. If you have already taken an RMD in 2020, you have the option of returning it, if certain conditions are met. Waiving RMDs permits a further deferral of taxes while allowing plan account balances to rebound from the current economic downturn. Although RMDs are waived for 2020, you still have the option of receiving RMDs if desired.
Coronavirus-Related Retirement Plan Distributions – Early Withdrawal Penalties Waived
The CARES Act waives the 10% penalty on early withdrawals for amounts up to $100,000 for individuals diagnosed with COVID-19 (including spouse and dependents), or who experience a financial impact due to furlough, layoff, reduction in hours, or inability to work due to lack of child care. This gives you significant freedom to make the most of your resources during this unprecedented time in our history.
The distribution you receive can be repaid to your retirement plan over the next three years; if it is not repaid, then any income tax attributable to the distribution can be paid ratably over a three-year period. It is important to note, however, that the retirement plan distribution provisions in the CARES Act are optional, meaning that their availability is subject to acceptance by your retirement plan provider.
Coronavirus-Related Retirement Plan Loans — Limits Increased up to $100,000
If you have been impacted by coronavirus, as a plan participant, your loan limit may be increased to the lesser of $100,000 or 100% of your vested account balance. This increase applies to any loan you take within 180 days following enactment of the CARES Act. The Act also delays the due date for outstanding loans from qualified employer plans that would otherwise be due in 2020 for one year without penalty.
Unemployment Compensation Benefits Increased
Many are facing unexpected loss of employment, furloughs and layoffs. In the event you face job loss, Unemployment Compensation has increased by $600 per week, and you may receive your eligible benefits for an additional 13 weeks. In order to speed relief to those suddenly unemployed, benefits will also be available the first week of unemployment, waiving the usual one-week waiting period.
Student Loan Relief — Deferment of Payments
In light of the economic crisis accompanying the coronavirus outbreak, if you owe on federal student loans, you may defer your payments until September 30, 2020, when hopefully the pandemic will have subsided. Even more importantly, interest will not accrue on your loan balances during this time. This deferral, however is completely voluntary. You may continue to make payments if you are able. If you do choose to defer your loan payments, you must make arrangements with your lender directly to defer your payments through September.
The information provided is not intended as a substitute for legal counsel or financial advice. While every precaution has been taken to ensure the accuracy of the information presented, Oast & Taylor PLC assumes no responsibility for errors, omissions, or damages resulting from the use of the information in this article.