CARES Act and the Changes Impacting Retirement Plans

By Hightower St. Louis on April 17, 2020

As a complement to our post Why You Should CARE About the CARES Act from April 1^st, we wanted to focus today on a few of the specific changes related to retirement plans.  Some of these changes allow those who don’t need additional funds to delay required distributions, while other changes focus on providing those in need of access to emergency financial relief.

Required Minimum Distributions

For those of you who reached your required minimum distribution age for IRAs or Qualified Retirement Plans such as a 401(k), the CARES Act removes the requirement for distributions in 2020. (Title II, Subtitle B, Section 2203 of the CARES Act)  Please note the SECURE Act passed earlier this year made changes to the RMD age, but we won’t go into those details here.

The 2020 RMD suspension does also apply to all Inherited IRA and Inherited Roth IRA accounts as well. (While Roth IRAs do not have a Required Minimum Distribution, Inherited Roth IRAs do.)

This means you do not need to withdraw funds from your retirement plan unless you need the money to cover your living expenses.  What a great opportunity to reduce your taxable income for 2020 or allow that Inherited Roth IRA distribution more time to grow tax-free. While we are proactively working with clients to make changes to RMD plans, please reach out to us if you feel your plan needs to be discussed.

If you have already fully or partially taken your RMD for 2020, the CARES Act does not allow you to simply deposit the funds back into your IRA or Qualified Plan. However, it is possible you may be able to take advantage of the 60-day rollover rule, but this does not apply to inherited IRAs.

• Normal rules permit one 60-day rollover per 12-month period.
• If you have not done a 60-day rollover in the past 12 months, and you took RMD money out of a retirement plan in the past 60 days, you could re-contribute these funds back into the IRA to avoid the taxable distribution for 2020.
• There could be additional items to account for, such as whether you had tax withholdings from your distribution.

Please also remember that annuities can be held in an IRA, so it is important to review your existing annuity distribution plan. Check with your annuity company to see if they could direct your payment to an IRA account, which is known as a trustee-to-trustee transfer and avoids the 60-day rollover limitations.

You could then decide whether you need to remove the funds from your IRA prior to the end of the year. More information is available from the IRS on 60-day rollovers and trustee-to-trustee transfers.

For those who already withdrew money from their IRA and are outside the 60-day window, you will need to wait and see if the IRS provides a blanket exception at a later date.

Qualified Charitable Distributions (QCD) are still permitted, so you may still give your RMD directly to a charity. Remember that the distribution must go directly from your retirement account to the charity. The funds must not be deposited in your own name first.

Please remember to discuss any of the above topics with your tax professional.

Special CARES Act Withdrawal & Loan Provisions

Providing some relief for those in need, the CARES Act relaxed restrictions regarding access to funds from Qualified Retirement Plans and IRAs. (Title II, Subtitle B, Section 2202 of the CARES Act) While this is a great benefit to those who desperately need the financial relief, it should be looked at as a last resort. Again, this is absolutely a last resort, but we feel it is important to cover. First, to qualify for any of the below special provisions, those impacted must be classified as “Qualifying Individuals,” who are defined as one of the below:

1. An individual who is diagnosed with COVID-19 by a test approved by the CDC;
2. Whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus; or
3. Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to such virus, being unable to work due to lack of child care due to such virus, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of Treasury (or the Secretary’s delegate). (Title II, Subtitle B, Section 2202, Subsection (a)(4) of the CARES Act)

Tax Favored Withdrawals from Retirement Plan

The first special provision provides more flexible access to retirement plans such as accounts like your 401(k) and IRA.  The CARES Act created a new type of withdrawal called a “coronavirus-related distribution” that is different from traditional Hardship withdrawals.  The key points are:

• The withdraw must take place between January 1, 2020 and December 31, 2020;
•  Individuals can take a coronavirus-related distribution up to $100,000;
• The distribution is not subject to the 10% early withdrawal penalty, which is generally applied when you withdraw from a retirement plan before age 59 ½. The waiver of the 10% penalty is also retroactive to January 1, 2020, so if you took a distribution prior to the Act being finalized, it now qualifies for this waiver;
• The distribution will still be subject to income taxes just like any other retirement plan withdrawal; however, the tax liability can be spread out over the next 3 years. Additionally, individuals can pay back the distribution or “re-contribute” any time over the next 3-year period to avoid some or all of the income taxes on the distribution. Note that details are still being worked out on timing and how this will work over multiple years and tax returns.

Loans from Qualified Plans

The other special provision provides more flexible access to company retirement plans through expanded loan provisions. The key points are:

• Applicable for qualified individuals taking a loan during the 180-day period beginning on the date of the enactment of the ACT (March 27^th);
• The CARES Act doubles the maximum loan amount from the lesser of $50,000 or 50% of the account balance to the lessor of $100,000 or 100% of the participant’s balance. For example, if you have a 401(k) balance of $150,000, you can borrow up to the $100,000 limit.  If you have a 401(k) balance of $75,000, you can borrow up to $75,000 or 100% of your balance since it is under the $100,000 cap;
• Repayment of new loans and existing loans may be suspended for up to one year. At the end of the one-year suspension, the loan balance and accrued interest must be re-amortized.

Everyone’s situation is a bit different, so there are many considerations to discuss before acting on any of the above. That is why your Hightower Wealth Advisors team is here to help. We work closely with your tax and legal professionals to ensure that your plan incorporates these updates where necessary.

We hope that you and your family stay safe and healthy during these very tough times.

Hightower Advisors does not provide tax or legal advice. This material was not intended or written to be used or presented to any person or entity as tax advice and information, or legal advice and information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. You are urged to consult your tax and legal advisor before taking any action.

Brian Copeland, CPWA®, CFP®

Brian’s Blog Posts



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