Inside New Retirement Provisions of the CARES Act (Commentary)

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With a volatile economy and stock market, many Americans have been keeping a close eye on their retirement accounts. Although many plans have experienced loss of value, there are likely to be workers looking to tap these funds to tide them over through job losses and a devastated economy. 

On the other hand, certain older people may be looking to avoid mandatory withdrawals from retirement plans until lost value is potentially regained.

This is an Opinion

As part of the $2 trillion economic relief package signed into law on March 27, Congress relaxed certain restrictions and requirements on retirement funds that address both of these situations. 

Specifically, the Coronavirus Aid, Relief and Economic Security Act (or CARES Act) temporarily waives the early withdrawal penalty on certain distributions from eligible retirement plans and certain required minimum distribution rules. 

Temporary Waiver of Early Withdrawal Penalty 

Generally, Section 72(t) of the Internal Revenue Code imposes a 10% penalty tax on early withdrawals from qualified retirement plans. Under the CARES Act, that penalty does not apply to any coronavirus-related distribution so long as the aggregate amount of the distribution does not exceed $100,000. 

A “coronavirus-related distribution” is a distribution from an “eligible retirement plan” to a person:

  • diagnosed with COVID-19; 
  • whose spouse or dependent is diagnosed with COVID-19; or 
  • who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, required to work reduced hours, unable to work due to a lack of child care, etc.

An “eligible retirement plan” is defined under Internal Revenue Code Section 402(c)(8)(B) to generally mean an individual retirement account, an individual retirement annuity, a qualified trust, a qualified annuity plan or an eligible deferred compensation plan. 

Although the 10% penalty is temporarily waived under the CARES Act, the amount withdrawn must be included in gross income. But the CARES Act allows an individual to spread the income ratably over a three-year period starting in 2020. In lieu of paying the tax on the distribution, an individual who receives a coronavirus-related distribution may, at any time during the 3-year period, repay the distribution without regard to the usual cap on contributions and the repayment will be treated as a tax-free rollover of the account (normally limited to a 60-day time limit).

Qualified Plan Loans Amount Increases and Repayment Deferred

In a similar vein, if a person is eligible for a coronavirus-related distribution, for the 180-day period after the enactment, the CARE Act increases the limit on loans from qualified employer plans to such person from $50,000 to $100,000, and it increases the percentage limit from 50% to 100% of the account. 

If a person qualifies for such a loan, a new loan and existing plan loans, the repayment due date for such loans (new and old) will be delayed for one year. Subsequent loan repayments will be adjusted to account for the 1-year delay.

Temporary Waiver of Required Minimum Distribution Rules

Under current law, required minimum distributions typically begin the year after an individual either turns 72 or retires — whichever is later. If an individual fails to comply with the requirements, the amount not withdrawn is taxed at 50%. 

But the CARES Act provides individuals with the option not to take required minimum distributions from individual retirement plans, or certain defined contribution plans, for the calendar year 2020.

Because the propriety of fund withdrawals is not the subject of this column, it’s recommended that a plan participant consult with his or her CPA or tax attorney to evaluate options.


Bryant Cranford is a member and lead of the business section at Rose Law Firm. He practices in the areas of employee benefits and executive compensation, tax, estate planning and probate.

Nicole Gore is a business associate at Rose Law Firm. She advises clients on an array of complex federal and state tax issues, such as those regarding income, gift, sales and estate tax.