Certain measures that would relax the rules as it relates to a participant’s retirement savings are included in the massive $2 trillion coronavirus spending bill which was passed into law on March 27, 2020.
Below are key points passed under the bill as it relates to retirement savings plans.
- No Early Withdrawal Penalty – In the new bill, individuals who have been affected by COVID-19 would be able to take distributions of up to $100,000 in 2020. Affected individuals are defined as people who have been diagnosed with COVID-19, spouses or their dependents who have had the disease or experiencing financial consequences directly related to the disease. In normal circumstances, these distributions would be subject to a 10% early withdrawal penalty. Under the new bill, if under age 59 ½, these distributions are exempt from the 10% penalty. Withholding taxes would still apply, but the participant is able to pay tax ratably over a three-year period. Participants taking these distributions will also be able to pay that amount tax-free back into their plan over the next three years and those repayments are not subject to the retirement plan contribution limits.
- Larger Loans Available – Normally under a retirement plan, participants can borrow only up to $50,000 or 50% of their vested balance, whichever is less. Under the new bill, participants will be able to borrow up to $100,000 against the amount saved in their plan. In certain cases, participants may have to take a loan before they are able to take a hardship withdrawal, so it is important to understand the Plan document stipulations.
- Required Minimum Distributions – In 2020, participants aged 72 are required to take annual required mandatory distributions (RMD) from their retirement plans. This recently changed from 70 ½ in prior years. Under the new bill, those RMD amounts would be suspended in 2020 in an effort that will help participants leave their money in their retirement plan and not be required to withdraw funds.
If you have any questions, please contact our Employee Benefit Plan Practice Leader Anne Morris at email@example.com or 678-510-2723.