In late March 2020, as the number of novel coronavirus cases in the U.S. surged past 100,000, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed into law.1 The CARES Act provides around $2.2 trillion in aid to businesses and individuals who have been impacted by shelter-in-place orders, government-mandated business closures, and large-scale job losses.
However, some of the CARES Act's provisions aimed at retirement accounts can also benefit those who are as yet untouched by the coronavirus crisis. Learn more about the specific retirement assistance contained within the CARES Act.
In 2020, individuals under age 59.5 can withdraw up to $100,000 from their employer-sponsored retirement plans without paying the traditional 10 percent penalty tax if they fulfill a couple of conditions.2 To qualify for the tax waiver, the individual and/or their spouse must have:
- Been diagnosed with COVID-19 through a CDC-approved test; or
- Experienced adverse financial consequences after being furloughed, laid off, quarantined, or having their hours cut; or
- Experienced adverse financial consequences due to school closures and lack of childcare.
If the distribution is repaid within three years, the distribution is considered a tax-free rollover, which means that the individual will never need to pay taxes or the 10 percent penalty on what they (temporarily) withdrew. For qualified individuals, this can provide a financial lifeline during an unprecedented economic period.
If the qualified individual is unable to repay the withdrawal within three years, the distribution will be included in their income over a three-year period beginning with the year in which the distribution is made (2020). Though this will still require the individual to pay taxes on what they withdrew, by eliminating the 10 percent penalty and the 20 percent automatic tax withholding, this provision can put more money into a person's pocket when it's needed the most.
Prior to the CARES Act, retirement plan loans were capped at the lesser of $50,000 or 50 percent of the participant's account balance. And with the recent stock market drop, this left many 401(k) holders with fewer options than they had just a few months before.
The CARES Act doubled these limits for 180 days after its enactment; qualifying individuals can now withdraw the lesser of $100,000 or 100 percent of their account balance through a retirement plan loan. Furthermore, those who take out a plan loan on or after the effective date of the CARES Act have until December 31, 2021 to repay the loan.
Those who are over age 72 and therefore required to take required minimum distributions (RMDs) from their retirement plans are in luck—instead of withdrawing these RMDs in 2020 (and risking losses from the recent stock market drop), these individuals can either roll over the RMD or decline to take it entirely. This one-year waiver applies only to RMDs required to be taken in 2020.
Important Disclosure Information
The comments above refer generally to financial markets and not Bazis Young portfolios or any related performance. The content of this article should not be considered financial advice. The article is not intended to offer specific investment recommendations and is general in nature and should not be considered a comprehensive review or analysis of the topics discussed. This article is not a substitute for a consultation with an investment adviser in a one-on-one context whereby all the facts of the attendee’s situation can be considered in its entirety and the investment adviser can provide individualized investment advice or a customized financial plan. Opinions expressed are current as of the date shown and are subject to change. Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk including loss of principal. Information or data shown or used in this material was received from sources believed to be reliable, but accuracy is not guaranteed. This information does not provide recipients with information or advice that is sufficient on which to base an investment decision. This information does not consider the specific investment objectives, financial situation or need of any particular investor and may not be suitable for all types of investors. Recipients should consider the content of this information as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.
Bāzis Young Investment Group, LLC is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply any level of skill or expertise. Any discussion of specific securities is provided for information purpose only and should not be deemed as investment advice or a recommendation to buy or sell any individual security mentions or to allocate assets in any manner discussed.
Tracking # 1-977645 (exp. 12/21)