The CARES Act and Your Retirement Funds: 4 Things You Need to Know
July 28, 2020 08:40 AM
For so many of us, COVID-19 has impacted day-to-day living. For the past several months, we’ve been facing more unpredictability than we could have bargained for. From closures and quarantine mandates, to face masks and ever-changing CDC guidelines – there is no truer descriptor about these times than “unprecedented.”
In the midst of all this, have you taken a moment to stop and consider what financial implications this has had on your retirement fund? Horizon has, and here’s what you need to know.
Back in March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. It was a $2 trillion emergency relief package to help individuals and businesses in the wake of the coronavirus pandemic — and it included special provisions related to retirement accounts. While more changes are forecasted for the fall, we encourage you to take note of these four points.
1) What does "coronavirus-related" mean?
In this context, the term “coronavirus-related” refers to:
• Individual circumstances that arise from being diagnosed with COVID-19, or having a spouse or dependent diagnosed with COVID-19, and/or
• Financial circumstances that have been negatively affected by the pandemic, due to situations such as quarantines, job furloughs, and business closings
2) Coronavirus-related distributions
• Typically, when you take distributions from a retirement account — like an IRA or 401(k) — before the age of 59 ½, a 10% penalty will apply. However, the CARES Act waives this penalty for up to the first $100,000 of distributions taken in 2020 for coronavirus-related needs.
• The income tax that would normally apply to such a distribution may be spread out over the course of 3 years if desired, starting in 2020, — and you can also pay your distributions back to your retirement account over the course of three years if you’d like.
3) Loans from qualified plans
Need to take a loan from your 401(k) or similar account? Loan limits have been increased by the CARES Act. For coronavirus-related loans taken between March 27 and September 22, 2020, the limit is now $100,000 or 100% of the amount you could rightfully receive from your plan (whichever is less). Additionally, loan repayments may be delayed for up to a year. Speak with your employer to determine if your 401(k) allows loan distributions.
4) Most required minimum distributions (RMDs) are suspended for 2020.
Typically, you’re required to begin taking distributions from your retirement account once you reach 70 ½ (or age 72 for those who reach 70 ½ in 2020 or later). But for the rest of this year, these required distributions are being waived (except in the case of Section 457 plans). So suspending your distributions or loans may be a good idea if you prefer to preserve your savings at this time.
Wondering how it all applies to your situation?
For details and to discuss your best options for your current circumstances, reach out to Horizon Bank or your personal financial advisor. Find an Investment Advisor today - click here.