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CARES Act: What You Need to Know for Your Retirement


The latest update on the Coronavirus Aid Relief and Economic Security Act and how it impacts your retirement plan. 

The federal government recently passed the Coronavirus Aid Relief and Economic Security (CARES) Act to provide over $2 trillion intended to spread relief across the economy. The Act addresses several economic concerns of the current environment, which can be reviewed in the full text of the Act here, but there are two significant changes to retirement accounts every AAFMAA Member should know:

1. Tax-Favored Withdrawals

2202(a) of the CARES Act addresses tax-favored withdrawals from retirement plans for those directly impacted by coronavirus by testing positive for COVID-19, having a spouse or dependent who has tested positive, or having been adversely affected financially by quarantine, job loss, or other factors.

These individuals may withdraw up to a total of $100,000 from IRAs and eligible retirement plans at any time during 2020 with the following special provisions:

  • Exempt from 10% early withdrawal penalties
  • Amount distributed can be repaid, or rolled back into your account, over three years
  • Taxable distribution inclusion in gross income can be spread over three years
  • Not subject to mandatory tax withholding from a qualified plan

Additionally, the loan limit for qualified employer retirement plans increases from $50,000 to $100,000 under the Act. Participants can also delay the repayment of this loan for up to one year. Remember, these special provisions only apply to people directly impacted by COVID-19.

2. Waiver of RMDs

Section 2203 of the CARES Act suspends Required Minimum Distributions (RMDs) for 2020 for IRAs, 401(k)s, 403(b)s, and 457(b)s for all eligible account owners, not just those directly affected by coronavirus. This means that, for people who delayed their 2019 distribution, both 2019 and 2020 distributions are waived. This also includes RMDs from stretch IRAs.

If you’ve already taken your 2020 distribution, you may be able to return the distribution back to your retirement account in certain circumstances. Expect more clarification on issues like this from the IRS soon.

In addition to these two changes to retirement accounts outlined in the CARES Act, the IRS has also moved the deadline for making 2019 IRA contributions to July 15, 2020, in response to COVID-19. This is potentially good news for those that have not yet contributed the maximum amount to their 2019 IRA. You can find out more about the current tax deadlines on irs.gov.

If you’d like to know how these changes impact your personal financial situation, please contact an AAFMAA Wealth Management & Trust LLC (AWM&T) Relationship Manager directly.  We remain committed to putting you first and providing you with all the information you need as the financial landscape evolves.