Impact Of 2020 Cares Act On Retirement Accounts

The CARES Act passed in response to the Caronavirus pandemic changes a number of rules regarding access to funds in retirement accounts. Of course, before deciding to withdraw or borrow from your retirement accounts, it is advisable to consult with your financial advisor and accountant.

These rule changes may provide new options for settlements of divorce cases during 2020.

For Qualified Retirement Plans (401(k)s, 403(b)s and the like), and for IRAs the rules are substantially the same.

For withdrawals by qualified participants*

• You may take a distribution up to $100,000 during 2020 calendar year
• The 10% penalty tax on participants under age 59 ½ will not apply
• The 20% tax withholding will not be taken
• Although the funds will still be subject to income tax, payment can be spread over a 3 year period
• You can also repay the funds withdrawn from your account during the 3 year period and avoid the income tax liability
• The funds repaid will not count as part of your annual contribution limits

For Qualified Plan Loans

• The loan maximum is increased from $50,000 or 50% of the vested balance to $100,000 or 100% of the vested balance as of 3/27/2020
• If you had an existing loan with repayment due on or after the date of the CARES act through 12/31/2020, you can delay repayment for up to one year, although interest will continue to accrue during the delay

*You qualify for these provisions if

• You, your spouse or a dependent is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC
• You experience adverse financial consequences due to one or more of the following:
  • o Being quarantined
  • o Furloughed
  • o Laid off
  • o Having reduced work hours
  • o Being unable to work due to lack of child care related to SARS-CoV-2 or COVID-19
  • o A business you own or operate is closed or hours reduced due to SARS-CoV-2 or COVID-19
  • o Other factors determined by the Treasury Secretary

There are other rule changes related to Required Minimum Distribution and inherited IRAs. Consult your financial advisor or accountant about these.

The family lawyers at Brown, Paindiris & Scott LLP are available to discuss these options with you.