On March 27th, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides some financial assistance for individuals as well as businesses. Here are a few samplings this week:
Retirement Withdrawals: Plan Sponsors MAY offer a new type of hardship withdrawal for participants in 401(k) type defined contribution plans or individual retirement accounts (IRAs) who are affected by COVID-19. The new distribution is not subject to the 10% early distribution penalty and may be repaid over 3 years. Distributions may not exceed $100,000 per eligible participant.
Income taxes will still be owed on withdrawn amounts, but the law allows individuals to spread the recognition of income and the tax payments over a three-year period. Those repayments would not affect annual retirement plan contribution limits.
The waiving of the 10% penalty applies retroactively to withdrawals beginning January 1, 2020, for account holders if:
- They have received a diagnosis of COVID-19.
- A spouse or dependent has received a diagnosis of COVID-19.
- They experience, due to COVID-19, adverse financial consequences as a result of being quarantined, furloughed or laid off; having work hours reduced; or being unable to work due to lack of child care, or other factors as determined by the Treasury secretary.
Additionally, for individuals affected by the coronavirus, loan limits from retirement plans are increased from $50,000 to $100,000. For loans due in 2020, the repayment deadline is delayed.
Mandatory Retirement Distributions: Generally, taxpayers over the age of 70 1/2 are required to withdraw minimum amounts annually from certain retirement plans on accounts, subject to a 50% penalty. The CARES Act waives the minimum distribution requirements for 2020. Unfortunately, if it has already been withdrawn there does not appear to be an opportunity to put it back.
Charitable Contributions: Individuals are permitted up to $300 of above-the-line tax deductions for charitable contributions made in 2020, regardless of whether the individual itemizes their deductions. For individuals who do itemize their taxes, the 50% of adjusted gross income limitation is suspended for 2020.
Visit our COVID-19 Resource Page for more updates.