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CARES Act: Your Questions, Answered


Last updated: April 22, 2020

In early April, we invited readers to submit questions about the newly passed Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Most of your questions were related to retirement accounts and required minimum distributions (RMDs), and we address those topics below.

First, let’s start with an overview of the CARES Act and other government support measures. To recap:

  • March 6 – Testing and Medical Support. The first coronavirus response package was an $8.3 billion measure to help fund testing and lower costs for medical treatments related to COVID-19, the disease caused by the coronavirus.
  • March 18 – Families First Act. The second aid package, the Families First Coronavirus Response Act, allocates an estimated $100 billion for extended paid sick leave and family leave for some U.S. workers impacted by COVID-19. It also expands unemployment benefits and provides additional virus testing resources.
  • March 21 – Tax Day Delay. The IRS postponed the federal tax payment and filing deadlines to July 15.
  • March 27 – CARES Act: This third, sweeping emergency aid package allocates approximately $2 trillion in emergency relief for individuals, businesses, industries, hospitals, etc.

CARES Act: Stimulus Payments

More than just stimulus, the CARES Act is meant as financial relief for individuals and businesses.

  • $1,200 payments for individuals, phased out for adjusted gross income levels above $75,000 and capped at $99,000 (based on 2018 or 2019 tax returns)
  • $2,400 for couples, phased out for joint adjusted gross income above $150,000 and capped at $198,000 (based on 2018 or 2019 tax returns)
  • Payments of $500 per child
  • Expanded unemployment benefits, including $600 per week for up to four months
  • Approximately $349 billion in loans for small businesses, $500 billion in loans for industries and $130 billion in assistance for hospitals

Your CARES Act Questions

While President Trump signed the CARES Act into law, the IRS must still provide guidance on numerous details. The information below represents what we currently know based on the law as passed. Please check back here often or visit irs.gov for updated information.

How does the CARES Act affect my retirement accounts?

The CARES Act provides more flexibility with required minimum distributions, withdrawals and loans from certain types of retirement accounts.

What is the impact of CARES Act on required minimum distributions (RMDs)?

The CARES Act waived 2020 RMDs. The waiver applies to owners and beneficiaries of traditional IRAs and IRA-based accounts (SEPs, SARSEPs, SIMPLE IRAs), as well as profit-sharing, 401(k), 403(b) and 457(b) plans.

The waiver also applies to anyone who reached 70½ in 2019 and had until April 1, 2020, to take their first RMD—unless they had already taken their 2019 RMD during calendar year 2019.

Waiving RMDs provides options for investors who don’t want to take money out of their accounts during market volatility. However, investors who do not have much taxable income may want to evaluate if it makes sense for them to take the distribution this year to take advantage of a lower tax bracket.

Updated with additional IRS guidance: What if I’ve already taken my 2020 RMD in 2020? Can I put it back in my account?

If you’ve taken any portion of your 2020 RMD during calendar year 2020, you may be eligible to roll it back in. However, the deadline to do so depends on when you took the distribution:

  • 2020 RMDs taken on or before January 31, 2020, should have been rolled back in within 60 days. The deadline has passed.
  • 2020 RMDs taken between Feb. 1, 2020, and May 15, 2020 have been granted an extension to July 15, 2020, to roll the funds back in.

Regardless of the date range, returning the RMD still counts as your one rollover allowed within any 12-month period. 

If you previously did a 60-day rollover within the last 12 months, you are not eligible to roll the funds back in. If you have had an automatic withdrawal of all or part of your RMD, it's best to talk to a tax advisor.

NOTE: Beneficiaries who have already taken a 2020 RMD are not eligible to roll it back into their beneficiary account. Additionally, first time 2019 RMDs taken during the 2019 calendar year can't be "undone" or rolled back in.

 

I’ve heard that the CARES Act allows people to take money out of retirement accounts. Can I? Should I?

The CARES Act allows for a “penalty-free” distribution through Dec. 31, 2020, of up to $100,000 from traditional IRAs and IRA-based accounts (SEPs, SARSEPs, SIMPLE IRAs), as well as profit-sharing, 401(k), 403(b) and 457(b) plans.

You’re only eligible if your need for the distribution results from hardship created by COVID-19. The Act states:

The provision applies to individuals who have been diagnosed with “the virus SARS-CoV-2” or “coronavirus disease 2019 (COVID-19),” individuals whose spouse or dependent is diagnosed with such virus or disease, or individuals who experience adverse financial consequences as a result of:

  • being quarantined, being furloughed or laid off or having reduced working hours due to the virus/disease
  • being unable to work due to lack of childcare due to the virus/disease
  • losing or reducing hours of a business owned or operated by the individual due to the virus/disease

While the distribution is penalty-free, it will still be subject to normal income tax rules, as applicable. You may spread the taxes evenly over a three-year period, and you may repay the amount to an IRA or other eligible retirement plan that allows rollover contributions. You have to make the repayment within three years of the date you took the distribution.

The “should I?” part, however, depends on your situation. We help you explore your options in a related article:

In Need of Emergency Money? Where to Look. What to Watch Out For.

The coronavirus is not just a medical crisis. It’s also a financial one for many. Find ways to free up or get money when you need it now.


I took a loan from my qualified retirement plan, but I’m not currently working. How can I defer repayments?

If you are an eligible individual as defined by the CARES Act, then you are eligible to have any loan repayments suspended that are due between March 27, 2020, and Dec. 31, 2020. These repayments can be suspended for up to one year. It is important to note that you should work with your plan administrator if you are looking to defer any loan repayments.

I read that I may be eligible to take a larger loan amount from my qualified retirement plan. What does this mean?

The CARES Act gives qualified plans the option to temporarily increase loan amounts available to eligible participants as defined by the CARES Act. Previously, the maximum loan amount was the lesser $50,000 or 50% of your vested balance. Now, the limit is the lesser of $100,000 or 100% of your vested balance.

As a reminder, your maximum loan availability will still be reduced by your highest outstanding loan balance for the last 12 months. Consult with your plan administrator if you are curious about whether your plan will allow this larger loan amount.

What’s Next?

We’re still in the early days of understanding how COVID-19 will affect our communities and the world at large. The uncertainty and lack of confidence will drive continued market turbulence in the coming weeks and months. This may be a good time to review whether your long-term investment strategy is aligned with your time horizon and your willingness to accept short-term volatility.

Want to discuss your options? Let’s talk.

Let’s Do This, Together

Whether you’re worried about market volatility, risk or your own situation, let’s talk through it together.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

This information is for educational purposes only and is not intended as a personalized recommendation or fiduciary advice. There are different options available for your retirement plan investments. You should consider all options before making a decision. Our representatives can help you evaluate all of your distribution options.