Relief for Retirement Account Owners During COVID-19

The Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27, 2020 modifies the existing rules governing retirement accounts and helps taxpayers improve their cash flow. Here we highlight (1) the waiver of the 10% penalty applicable to early withdrawals, (2) the enhanced loan provisions, and (3) the suspension of the Required Minimum Distribution rules.  Please consult with your tax advisor to determine how you may take advantage of these new rules.

  • Waiver of penalty on withdrawals.  Eligible retirement plan owners younger than 59-1/2 have until December 2020 to withdraw up to $100,000 without being subject to the usual 10% penalty on early distributions or the mandatory 20% income tax withholding.  In addition, the income tax on such withdrawal can be paid in installments over three years or avoided entirely by paying the funds back to an appropriate retirement account as a tax-free rollover. 
  • Enhanced loan rules.  For loans taken against an employee-sponsored retirement plan or 401(k), the maximum loan amount has been increased to $100,000 (up from $50,000) or 100% of the vested balance, whichever is less.  Although interest begins to accrue from the date of the loan, the five-year repayment window does not begin until 2021. (Note: It is not permissible to borrow against an IRA account.  And, while most employers permit retirement plan loans, they are not legally required to do so.)
  • RMDs Suspended for 2020.  The CARES Act has suspended required minimum distributions (RMDs) for 2020.  If you have already taken your 2020 RMD, you have until September 2020 to return the RMD funds to your account.

The Trust and Estate Private Client Group of Sichenzia Ross Ference, LLP, hopes that you and your loved ones are managing to stay safe and healthy.  Please contact Robert Birnbaum, Esq., or Carolyn M. Glynn, Esq. if you are interested in learning more about this or other estate planning topics.