By John Fisher, CFP, Vice President, Wealth Management, GCG Financial

 

There are several 401(k) provisions that have been created as part of the CARES Act that you need to be aware of. Here is a brief overview of the provisions and a link that has the provisions in more detail for you.

 

Withdrawal Provisions (Coronavirus-Related Distribution up to $100,000)

• The maximum amount an individual can withdraw as a Coronavirus Related Distribution is $100,000. 

• 10% early withdrawal penalty tax is waived on "Coronavirus Related Distributions" from a retirement plan or IRA.
 ? Individuals can pay the income tax on the withdrawal ratably over 3 years. 
 ? The act allows individuals to repay amount distributed tax-free back to the plan. 
 ? Repayment will not be subject to retirement plan contribution limits.
 ? When participant repays the hardship distribution, they will need to file amended tax return.

 

Loan Provisions (increased to $100,000)
• Enhanced the plan loan provisions for a loan taken by an individual who meets the requirements for a "Coronavirus Related Distribution." 

• Participant who meets the requirements can take up to the lesser of 100% of their vested balance up to $100,000, for loans taken within 180 days of March 27, 2020.

• The Act also provides that for "qualified individuals" any repayment that would otherwise be owed on a plan loan through the end of 2020 may be delayed for up to one year.

 

Minimum Required Distributions (waived for 2020)
• Waives the required minimum distributions (RMD) from retirement plans and IRAs for 2020. 

• This applies to the RMD for 2020 but also to the RMD that is required to be taken before April 1, 2020, for individuals who turned 70½ in 2019.
 
Contact your record keeper or plan advisor for details.  We recommend that any withdrawals should be discussed with a participant’s accountant and financial advisor prior to taking such withdrawals.
 

What is a "Coronavirus-Related Distribution"? 

A "Coronavirus-Related Distribution" is a distribution taken prior to Dec. 31, 2020, for an individual who:
• Is diagnosed with COVID-19;
• Has a spouse or dependent diagnosed with COVID-19;
• Experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
• Experiences other factors determined by the Treasury Secretary
 
The administrator of the plan can rely on an employee’s certification that the employee satisfies one of the conditions for a Coronavirus-Related Distribution.