The Coronavirus Aid, Relief and Economic Security (CARES) Act and The SECURE Act include several retirement plan provisions benefiting plan sponsors and participants and their families. The IRS recently issued guidance in the form of a Q&A relating to retirement plans and the CARES Act. We’ve summarized the key plan provisions from both Acts as well as new cafeteria plan guidance that may impact you.

Early Distributions from Retirement Plans
Under the CARES Act, qualified individuals can take a “coronavirus related” early distribution of up to $100,000 from their retirement plan without incurring the 10% early withdrawal penalty. Employers must adopt this early distribution provision before participants can follow the new rules. In addition, participants can spread the taxes owed on this distribution over three years or pay it all in 2020. Participants can also avoid paying tax on the distribution if they pay the funds back to the plan within 3 years.
Required Minimum Distribution Age Raised from 70 1/2 to 72
Since people are now living longer, the beginning age for taking distributions has been modified to age 72 under the SECURE Act. This change only impacts you if you turned 70 ½ after December 31, 2019. On the flip side, contributions to traditional IRAs can be made past age 70 ½ as long as they have earned income that justifies the contribution.
Required Minimum Distributions (RMDs) Waived for 2020
If you are required to take money out of your retirement plan due to your age, the CARES Act allows you to waive your RMD for 2020, thus allowing your potentially depressed account a chance to recover. If you have already taken your RMD for 2020, there is a possibility to put this money back into the plan. The IRS has granted an extension to roll funds back into an IRA until July 15, 2020, for any money withdrawn between February 1 and May 15, 2020. Normally you would have only 60 days to roll the money back.
Inherited IRAs Have Shortened Distribution Period
The SECURE Act eliminated the “stretch” provision for inherited IRAs. In the past, inherited IRAs could be taken out over the life of the beneficiary. Now, distributions must be taken within ten years. This is effective for those who die after December 31, 2019.
Retirement Plan Loans Have Higher Limits and Longer Payback Periods
The CARES Act permits employers to increase the maximum loan amount up to $100,000 (formerly $50,000) for loans taken out between March 27, 2020, to September 22, 2020, and the 50% limit is increased to 100% of the participant’s vested account balance. If you currently have an existing loan, then this $100,000 is reduced by the outstanding balance of your existing loan. In addition, any payments due on existing or new loans can be postponed for up to one year. Employers may, but are not required, to adopt this provision under their plans.
Retirement Plan Distributions Now Allowed for Qualified Adoption Expenses and Childbirth
Under the SECURE Act, parents are now able to withdraw up to $5,000, penalty-free within a year of birth or adoption, to pay for qualified expenses.
Increased Flexibility for Sec. 125 Cafeteria Plans
Allows for mid-year changes to Sec. 125 elections for health plans, flexible spending accounts (FSAs) and dependent care programs to respond to changes due to COVID-19. This allows you to change the amount withheld from your paycheck if more, or less, money needs to be withheld.

For additional information relating to any of the above employee benefit plan provisions, please contact your BMF Advisor to discuss the best options for your needs. Visit our COVID-19 Resource Center for additional information and resources for you and your business.

About the Authors

Cindy H. Mitchell
CPA
Senior Manager, Taxation Services

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