The $2 trillion relief package titled, “Coronavirus Aid, Relief, and Economic Security Act,” has passed the House and Senate today, March 27th. Included in the massive bill are several relief provisions for retirement accounts.
Required Minimum Distribution (RMD) Waiver
The RMD will be waived for 2020 for IRA’s, 401(k), and other qualified plans. Because RMDs are calculated based off of account balances as of the end of the prior year, the ability to defer them could help from having to take the RMD at a time when their portfolios may be down substantially from near-record highs of December 31, 2019.
Waiver of Early Withdrawal Penalty
The new act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for “affected individuals”.
We’ve seen this provision in previous disaster relief bills, but that relief only applied to people affected by particular hurricanes, wildfires, or other disasters. Here, given the scope of the current coronavirus pandemic, “affected individuals” could include a great many people. Further clarification on who is an “affected individual” will be needed.
For those over age 59 ½, the 10% early distribution penalty is not an issue, but for those facing financial hardship the ability to take a distribution now and spread the taxes over three years may be helpful. If their situation improves, the opportunity to repay the funds during the three-year period could be a useful way to rebuild otherwise lost retirement savings.
401(k) Plan Loans
The new law affects company plan loans taken by affected individuals.
First, it increases the maximum amount of plan loans to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the account balance. [The usual limit is the lesser of $50,000 (reduced by other outstanding loans) or 50% of the account balance.] This rule applies to loans taken within 180 days from the bill’s date of enactment.
Second, any loan repayments normally due between the date of enactment and December 31, 2020 could be suspended for one year.
If anyone has any questions about how these provisions may impact them, please feel free to contact the office at 631-293-2806.