CARES Act Brings Important Changes to Retirement Plans

6/4/2020 - By Chris Stennett, CFP®

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. The $2.2 trillion emergency package represents a massive fiscal effort to lessen the impact associated with COVID-19 across many sectors of the country. The information below provides a brief outline of the provisions within the bill that will have a direct impact on retirement plans, their participants, and their administration. The information contained in this article is current as of the date of publication, but as with most COVID-19 related topics, changes may occur. Please consult with your Advisor or CPA as needed for the most current information.  

Impacted Retirement Plans

401(k), profit-sharing, and employee stock ownership plans (ESOPs), 403(b) plans, 457 plans, and IRAs described in Section 408(a) or Section 408(b) of The Tax Code.

Who Qualifies?

Those who have been diagnosed with COVID-19, or whose spouse and/or dependent has been diagnosed with COVID-19. Also included are individuals who have experienced an adverse financial impact because of the disease, as outlined by the Secretary of the Treasury. That includes individuals who’ve lost their jobs, had reduced hours, been unable to work due to lack of childcare, and those quarantined, furloughed, or otherwise affected. These circumstances may be expanded or amended at a future date.

What’s Changed?

Temporary Waiver of Required Minimum Distributions (RMD)

The requirement for minimum distributions from retirement accounts has been suspended for all of 2020 (though not from defined benefit plans like traditional pension plans and cash balance plans). If you have not taken your RMD for 2020, and do not wish to, you will not be penalized. If you have already taken your 2020 RMD and wish to redeposit the distribution, there may be options depending on when the RMD was distributed. Absent additional guidance from the IRS, RMDs taken in January 2020 will not be allowed to be returned unless it qualified as a coronavirus-related distribution (see below). Distributions taken from February 1, 2020, to July 15, 2020, are eligible to be returned to a retirement account by July 15, 2020. Individuals who turned 70 ½ in 2019 and had not yet taken their first RMD prior to March 27, 2020, can now waive both previously required withdrawals (2019 and 2020).

Coronavirus-related Distributions (CRD)

Any distributions (including participant loan offsets) made from an eligible retirement plan to a qualified individual (section 2202 of the CARES Act) from January 1, 2020, to December 30, 2020. These distributions have several unique characteristics that distinguish them from normal retirement plan withdrawals.

  • New Distribution Category – While the coronavirus-related distribution may seem like a hardship distribution, it is actually a separate distribution category. A plan that elects to offer CRD’s to its participants, can do so without allowing other distributions. Like hardship distributions, the CRD allows for an exception to the general distribution restrictions prior to attainment of age 59 ½. Any qualifying distribution is eligible for tax treatment as a coronavirus-related distribution, even if the plan does not elect to offer it as a new distribution category.
  • Temporary Waiver of Early Withdrawal Penalties – Typically, pre-retirement age withdrawals (younger than 59 ½ years old) are subject to a 10% penalty on the amount distributed. That penalty will now be waived through the end of the year for all qualified CRDs, not exceeding $100,000 per individual.
  • Temporary Waiver of Tax Withholding Requirement – Eligible rollover distributions (like a lump sum payment) is subject to 20% mandatory tax withholding. For withholding purposes, coronavirus-related distributions are not treated as eligible rollover distributions and are subject to 10% default withholding that may be waived. It’s important to note that this does not absolve the participant’s income tax liability on the distribution.
  • Taxation of Distribution – Unless repaid, coronavirus-related distributions can either be included in income in the year received or can be spread, over the next 3 tax years. Ex. if you took a $3,000 distribution in 2020, you would report $1,000 in income on your federal income tax return for 2020, 2021, and 2022 or $3,000 in 2020. Distributions and repayments will be reported on Form 8915-E, similar to disaster distributions for recent hurricanes and wildfires.
  • Repayment of Distribution – Part or all of the withdrawal can be repaid to any qualified plan or IRA that will accept rollovers over 3 years from the date the distribution was received. You will not owe federal income taxes on amounts repaid. If you chose to repay an amount you have already included in income for a prior year, you can file an amended return for a refund or carry a credit forward to the next year. Ex. you took a $3,000 distribution in 2020 and reported $1,000 in income on your 2020 federal income tax return. During 2021, you decided to repay the full $3,000 back to a qualified plan. You would file an amended tax return for 2020 to accurately reflect the repayment of the distribution.

Temporary Increase to Participant Loans

Qualified individuals in employer-sponsored retirement plans that elect to offer coronavirus-related loans, can borrow the lesser of $100,000 or 100 percent of their vested account balance. This increase is only available for 180 days beginning March 27, 2020. IRAs are not eligible.

Outstanding Participant Loan Repayment Relief

If offered by the plan, participant loans that are outstanding on or after March 27, 2020, may delay repayments scheduled through December 31, 2020. The delayed payments are added to the remaining payment schedule. The existing 5-year repayment requirement (or longer if the loan is for the purchase of a primary residence) will be extended by the length of the delay, and future repayments will need to be revised to reflect the delay and accrued interest.

Charitable Deductions

  • $300 above the line charitable deduction for individuals claiming the standard deduction. Contributions must be made in cash and cannot be made to a Donor Advised Fund or Non-operating private foundation.
  • AGI limit for cash gifts to charities is temporarily suspended for individuals planning to itemize deductions in 2020. Previously, contributions of cash to a public charity were limited to 60% of adjusted gross income.


If you have specific questions, please reach out to a member of our team. Visit our COVID-19 RESOURCE HUB for ongoing updates and information. Due to the ever-changing nature of this event, you should always consult a professional.

ABOUT THE AUTHOR | Chris Stennett, CFP
Chris is a financial advisor and Certified Financial Planner™ practitioner for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. He serves individuals and organizations as a comprehensive financial planner and coordinator of investment activities. His areas of expertise include investment management, income planning, tax and estate planning, and risk management.

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