The CARES Act includes provisions that allow individuals to take early retirement plan distributions within certain rules. These changes include provisions for people with COVID-19 or who have family members with the illness. It also includes those who experience adverse financial consequences as a result of being quarantined, laid off, furloughed or having work hours reduced because of the illness.
The recently passed CARES Act includes provisions that allow individuals to take early retirement plan distributions of up to $100,000 from their retirement accounts without being subjected to the 10% penalty and gives them three years to pay the taxes on the distribution or return the funds to their account.
Also included, is the provision allowing individuals required to take Required Minimum Distributions (RMD’s) to elect to return the funds they have taken during 2020 or to not take their RMD for the year. In order to take these early distributions, or to return RMD’s taken prior to January 31, 2020, an individual must be able to designate them as a Coronavirus-Related Distribution. To establish these items as Coronavirus-Related Distributions the individual must fall into one of the following categories:
- Have been diagnosed with COVID-19
- Have a spouse or dependent who has been diagnosed with COVID-19
- Experience adverse financial consequences as a result of being quarantined, being laid off, furloughed or having work hours reduced because of the illness
- Are unable to work because they lack childcare as a result of COVID-19
- Own a business that has closed or has to operate under reduced hours because of COVID-19
It is important to note that these items only apply to early distributions and to RMD’s taken prior to January 31, 2020 for the current year that would therefore not fall in the normal 60-day window an individual would have to return distributions without repercussions.
If you have taken an RMD after January 31, 2020 you can simply write a check within 60 days of receiving the distribution and return those funds to your account without having to meet any of these requirements.
If you have not yet taken any RMD and do not wish to take the funds for the current year, there is nothing you will need to do to defer that payment. For any individuals that deferred their 2019 payment because they reached 70 ½ in 2019 and would have been required to take two distributions in 2020, this requirement is also eliminated.
Additionally, for those who typically use a portion of their RMD to support charitable organizations, these funds can still be withdrawn for those purposes allowing individuals to use pre-tax dollars to support the organizations that mean the most to them.