Two people meeting and discussing documents

Retirement Account Distributions Relief in Response to COVID-19

The Coronavirus Aid, Relief, and Economic Security (CARES) act was passed in March 2020 as a way to help individuals and businesses endure financial hardship caused by the COVID-19 pandemic. As has proven essential in other financial emergencies, allowing retirement plan participants to have access to their retirement funds can help lessen the negative financial impact of being out of work for a continuous period of time. Here were the distribution relief options available for retirement accounts in 2020::

  • Retirement plan loan distribution limits doubled and repayment terms softened
  • Special hardship distribution options introduced

Retirement Plan Loan Distributions

The CARES Act allowed qualified individuals to borrow more from their employer-sponsored retirement plans, as well as suspend repayments temporarily. Qualified individuals include anyone who has been affected by the coronavirus. If you took a loan between March 27, 2020, and September 23, 2020, you had the option to borrow up to:
  • $100,000 (rather than the regular $50,000 limit), minus loans you have outstanding, or
  • 100% of your non-forfeitable account balance or accrued benefit.
Repayments that were due between March 27, 2020, and December 31, 2020, could have been suspended for up to one year. However, repayments that were originally due in 2021 were required to begin January 1, 2021. Once payments begin, they willbe adjusted for interest that accrued on the loan during the suspension period. This provision allows for up to six years to repaya loan, rather than the usual five.

Hardship Distributions for IRAs and Retirement Plans

The CARES Act also provided the opportunity for qualified individuals to take a special hardship distribution of up to $100,000 from their IRA or retirement plan.

Who is a qualified individual?

  • Anyone who contracted COVID-19
  • Anyone who has a spouse or dependent who contracts COVID-19
  • Anyone who experiences financial hardship from quarantine, being laid off, furloughed, a reduction of work hours due to the virus, or due to lack of child care due to the virus.
  • Anyone who meets certain other factors as determined by the Secretary of the Treasury.

What are the special withdrawal provisions?

The new provisions allow individuals to:
  • Withdraw up to $100,000 or 100% of the vested account balance
  • Avoid the 10% early withdrawal penalty if below age 59½
  • Take up to three years from the date of withdrawal to repay the distribution to a retirement account to eliminate taxation or stretch income reporting over three years to lessen ordinary income tax implications

Consider discussing CARES act distribution provisions and repayment options with a qualified tax preparer.

Stifel does not provide legal or tax advice. You should discuss your particular situation with your legal and tax advisors.

0421.3559032.1