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Coronavirus, Aid, Relief and Economic Security (Cares) Act FAQs

In the fight against COVID-19 and the damage the pandemic has done to the economy, Congress enacted the Coronavirus, Aid, Relief and Economic Security (CARES) Act. A key provision deals directly with retirement plans and sponsors. Check with your individual plan to verify the following is allowed.

Can I make withdrawals from my retirement funds to pay for COVID-19 related expenses?

Yes, if your plan allows, you can withdraw up to $100,000 without paying a penalty if you make your withdrawal between January 1 to December 31, 2020.

Who is eligible to make COVID-19 related withdrawals?

You, your spouse or dependent must have a COVID-19 diagnosis or been negatively affected financially due to consequences of the virus (furlough, reduction in work hours, not able to work due to childcare, loss of business, etc.)

Are loan limits adjustable?

The loan limit can be up to $100,000 or 100% of the vested account balance, whichever is less. This adjustable limit only applies to loans originated on or before September 23, 2020 and only for COVID-19 related expenses as above.

What if I have an outstanding loan?

Repayments due from March 27 to December 31, 2020, can be delayed for up to one year. Interest does continue to accrue during deferment. The plan can extend the term of the loan for up to one year.

Can I repay the loan?

You have three years from the day after you receive a distribution to repay the amount. Remember, the distribution is taxable if it’s not repaid.

Do I need to prove the distribution is for COVID-19 related expenses?

No, you’re just required to self-certify the distribution is COVID-19 related.

Has the act changed my required minimum distribution (RMDs)?

The CARES Act waives RMDs for 2020, including your first RMD which is counted in 2019 though not paid by January 1, 2020. If you already received an RMD in 2020, you can roll it over and defer taxes or roll it back into the plan. RMD for the year is determined by the balance on December 31st of the previous year. Because the stock market plunged so precipitously in March 2020, an RMD calculation based on your balance as of December 31, 2019 would signal an overly large taxable distribution.

Should I make changes to planned withdrawals, loans and RMDs?

Any formal changes should be made no later than the last day of the first plan year beginning on or after January 1, 2022.

What about student loan debt?

The CARES Act extends tuition reimbursement of up to $5,250 a year to include student loan repayments with no tax implications.

Any changes to defined benefit plans?

The law has delayed the contribution deadlines. Any contributions due in 2020 are now due January 1, 2021. Employers do have to pay interest on delayed contributions, from the original due date to the delayed payment date, using the effective interest rate for the plan year of the original payment date.

Have health savings accounts (HSAs) changed?

Until December 31, 2020, remote healthcare services can be covered pre-deductible without violating federal rules for high deductible health plans paired with an HSA. The rule that limits the use of HSAs to only paying for prescribed medicines or drugs is waived until December 31, 2020. You can make contributions to HSA or Archer MSA up until July 15, 2020.

Will these new deadlines be extended again?

Maybe. The Department of Labor has broad authority to extend deadlines as needed.

Are you looking for an Arizona wealth management firm to provide personalized investment management? If so, contact the wealth advisors at Henry+Horne Wealth Management.

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