CARES Act: $100,000 CRDs & Loans

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed by President Trump on Friday 3/27/2020.  Two provisions of the CARES Act that many readers of this blog may find useful are the new distribution options and changes to retirement plan loans.

New corona-virus related distribution (CRD) option

  • Distribution of up to $100,000 for participants who are affected by COVID-19; applies to in-service participants or retirees.
  • Applies to 401(a), 401(k), 403(b), 457(b), and IRAs
  • No 10% early withdrawal penalty
  • By default, the CRD is split evenly over federal tax years 2020, 2021, and 2022 if the distribution is not repaid.  Or the taxpayer could elect to include all of the income from a CRD in their 2020 income.
  • Not subject to mandatory withholding requirements (ex. 20% rule).
  • May be repaid to the plan over a three-year period.
  • Taxation by States depends on state of residence, age, and which retirement plan/IRA the funds were distributed from.
  • Appears to be optional for plan sponsors to offer.

Note: It will be interesting to see if the NYC Deferred Compensation Plan (NYC DCP) offers this to its participants (active or retired).  NYC DCP plan participants may want to message or call (212-306-7760) the NYC DCP and request this new distribution option be available as soon as possible.  It will also be interesting to see how the different Union Annuity Funds (PBA, DEA, SBA, LBA, CEA, UFA, UFOA, etc) and the TRS TDA respond to this issue.  Unfortunately, many NYC employees/retirees have been impacted or will be impacted by this crisis.

Plan Loans

  • Up to $100,000 plan loans may be available between the period 3-27-2020 to 9-23-2020 for qualified individuals.
  • The limit of 50% of  the participants vested balance rule is eliminated for qualified individuals.
  • Any plan loan payment that comes due during the period beginning March 27th, 2020 and continuing through December 31, 2020, will be delayed for an additional year.  BUT subsequent loan payments will be adjusted to reflect the delay and any interest that accrues during the delay.
  • Loans are not permitted for IRAs

Note: The loan provision of the CARES Act may be very difficult for plan sponsors to offer/implement.

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