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The $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES Act) was enacted on Friday, March 27, 2020.

Significant IRA and workplace retirement provisions require a rapid response by retirement providers across the country. Accordingly, Convergent will be updating this microsite regularly as additional retirement-related information, guidance and relief become available.

Here are the specific provisions of the CARES Act affecting IRA owners and retirement plan participants:

SEC 2202. Special rules for the use of retirement funds
SEC 2203. Temporary waiver of required minimum distribution rules for certain retirement plans and accounts

Here is a link to a recording of a complimentary CARES Act webcast Convergent conducted on Wednesday, March 25, 2020, providing an overview of the anticipated changes.

Other Recent Activity

IRS Notice 2020-62 Safe harbor explanations – eligible rollover distributions
News Release IR- 2020-172 IRS: New law provides relief for eligible taxpayers who need funds from IRAs and other retirement plans
IRS Notice 2020-52 COVID-19 relief and other guidance on mid-year reductions or suspensions of contributions to safe harbor IRC section 401(k) and IRC section 401(m) plans
IRS Notice 2020-51 Guidance on waiver of 2020 required minimum distributions (RMDs)
IRS Notice 2020-50 Aims to help retirement plan participants affected by the COVID-19 coronavirus take advantage of the CARES Act provisions providing enhanced access to plan distributions and plan loans
IRS Notice 2020-23 Provides expanded tax filing relief, including extension of time for completing rollover transactions
IRS Notice 2020-18 Extends the tax-filing deadline – and funding deadline for IRAs, HSAs and ESAs – to July 15, 2020
IRS - Coronavirus-related relief for retirement plans and IRAs questions and answers

Webcasts

Upcoming Live Webcasts: Coronavirus 60-Day Rollover Relief (IRS Notice 2020-23) ($195)

On Thursday, April 9, 2020, the IRS issued Notice 2020-23 providing expanded coronavirus relief for numerous tax-related activities including—among other things—IRA rollovers. The rollover relief provides increased flexibility for IRA owners looking to complete a rollover contribution beyond the normal 60-day timeframe. Although limited in scope, the newly issued relief will provide additional flexibility for at least some IRA owners in required distribution status who took 2020 distributions before learning of the 2020 RMD waiver provision under the CARES Act.

The rollover relief, while certainly welcome, is likely to add to the already substantial amount of confusion surrounding the CARES Act 2020 RMD waiver.

Join us for a live, interactive webcast focused on the numerous questions surrounding the 2020 RMD waiver and the recently announced 60-day rollover relief.

Are we required to notify our clients about the CARES Act 2020 RMD waiver?
What options are available for clients who took 2020 distributions before learning of the RMD waiver?
Who is eligible to take advantage of the 60-day rollover relief under Notice 2020-23
What is our responsibility, as a provider, when accepting rollover contributions beyond 60 days?
Can clients who are adversely affected by the coronavirus pandemic repay a 2020 “RMD” distribution as a Coronavirus-Related Distribution?
Should we be stopping distributions during 2020 for clients in required distribution status who are set up for automated distributions?

When:

Click here to register for Tuesday, April 14, 2020 at 2:00 p.m. (CT) or
Click here to register for Thursday, April 16, 2020 at 10:00 a.m. (CT)

Cost: $195

Note: In addition to the rollover relief afforded under IRS Notice 2020-23, other time-sensitive acts such as information reporting, qualified disclaimers and actions required to qualify for certain penalty-free distributions are also impacted. We will continue to review the overall implications of Notice 2020-23 and provide additional information and updates, as appropriate, in the coming days.

Recorded Webcast: CARES Act Pending in Congress (Complimentary)

In this complimentary webcast, conducted Wednesday March 25, 2020, while the CARES Act legislation was still working its way through Congress, we preview the key provisions of the CARES Act affecting IRAs and workplace retirement plans and explore the ramifications these changes are likely to have on providers.

Access the recording here.

FAQs

+CARES Act

What is the CARES Act?
The CARES Act, otherwise known as the Coronavirus Aid, Relief and Economic Security Act, is a massive federal stimulus package designed by Congress to provide aid and assistance to individuals and businesses as the country deals with the international coronavirus pandemic.
When was the CARES Act enacted?
The CARES Act was passed by the House and Senate during the week of March 23rd, 2020, and signed into law by President Trump on Friday, March 27, 2020.
What types of assistance are made available through the CARES Act?
The CARES Act, approximately 800 pages in length, contains numerous provisions and provides over $2 trillion worth of financial stimulus designed to help individuals, families, businesses, nonprofits and healthcare workers and providers.
What impact does the CARES Act have on retirement savings?
The CARES Act includes several provisions that make temporary changes to the federal laws governing IRAs and workplace retirement plans (e.g., 401(k) plans) in an effort to provide greater financial flexibility for individuals throughout the country as they wrestle with the numerous hardships created by the international coronavirus pandemic.
What types of temporary changes does the CARES Act make to the federal laws governing IRAs and workplace retirement savings plans?
The CARES Act enables qualifying individuals to take penalty-free withdrawals (“Coronavirus-Related Distributions”) from IRAs and workplace retirement savings plans that are eligible for flexible taxation and repayment options not generally available for retirement savings distributions. In addition, the Act provides increased loan limits and suspension of loan repayment requirements for qualifying individuals who have (or who take) a loan from their workplace retirement savings plans. Lastly, the CARES Act suspends all required minimum distributions (RMDs) from IRAs and workplace retirement plans for 2020.
When did the CARES Act go into effect?
Many of the provisions of the CARES Act went into effect immediately upon the law’s enactment (March 27, 2020). Furthermore, some provisions of the Act are retroactively effective to distributions and plan loans taken prior to the law’s enactment.

+Coronavirus-Related Distributions

What is a Coronavirus-Related Distribution?
A Coronavirus-Related Distribution is an IRA or workplace retirement plan distribution taken by a Qualified Individual on or after January 1, 2020, and before December 31, 2020.
Is there a limit on how much someone may take as a Coronavirus-Related Distribution?
The maximum amount that may be taken as a Coronavirus-Related Distribution by any one individual is $100,000.
Are Coronavirus-Related Distributions generally included in taxable income?
While Coronavirus-Related Distributions must generally be included in taxable income, the CARES Act includes a special provision allowing taxpayers to include the taxable portion of any Coronavirus-Related Distribution in their taxable income ratably over a three-year period. Note: As with other IRA and retirement plan distributions, certain types of retirement funds—such as Roth savings and nondeductible Traditional IRA contributions—that are taken as part of a Coronavirus-Related Distribution are not taxed upon distribution. (Note: As addressed below, Qualified Individuals have up to three years to avoid paying taxes on Coronavirus-Related Distributions by making one or more repayments to their IRA or workplace retirement savings plans.)
What exactly does it mean to include the taxable portion of a Coronavirus-Related Distribution in income over a three-year period?
A taxpayer who does not wish to include a taxable Coronavirus-Related Distribution in income for 2020 may include one third of the taxable distribution in his or her income for years 2020, 2021 and 2023.
Are Coronavirus-Related Distributions taken by individuals under age 59½ subject to the 10% federal penalty on early distributions?
No. Coronavirus-Related Distributions are exempt from the 10% early distribution penalty under IRC Sec. 72(t). Coronavirus-Related Distributions withdrawn from SIMPLE IRAs within the first two years of participation are also exempt from the 25% early distribution that typically applies in those scenarios.
Are individuals required to include the taxable portion of a Coronavirus-Related Distribution in taxable income ratably over a three-year period, or is this simply an option?
The CARES Act provides individuals with the option of including the taxable portion of their Coronavirus-Related Distributions in taxable income ratably over a three-year period but does not require that taxpayers do so.
What are the potential advantages of including a Coronavirus-Related Distribution included in taxable income ratably over a three-year period?
While the advantages and/or disadvantages of doing so will vary for each taxpayer based on their unique circumstances, one of the potential advantages for some taxpayers is that spreading out the taxation over three years may result in some or all of the distribution being taxed at a lower marginal tax rate.
How is the election made to pay the taxes for a 2020 Coronavirus-Related Distribution ratably in 2020, 2021 and 2022?
Taxes owed for 2020 Coronavirus-Related Distribution are included in gross income ratably over the three-year period unless the taxpayer makes an election not to have the pro rata tax apply. This election will be made on the taxpayer’s 2020 federal income tax return.
Are individuals permitted to repay a Coronavirus-Related Distribution?
Yes. Under the CARES Act, individuals are eligible to repay all or a portion of a Coronavirus-Related Distribution at any time during the three-year period beginning on the day after the distribution is received.
If an individual repays all or some of a Coronavirus-Related Distribution, can they avoid paying taxes on the portion that is repaid?
Yes. The portion of any Coronavirus-Related Distribution that is repaid within the permissible three-year timeframe is not includable in the recipient’s taxable income.
Must all employers that sponsor workplace retirement savings plans make Coronavirus-Related Distributions available to plan participants?
No. The CARES Act does not mandate that all workplace retirement savings plans allow Coronavirus-Related Distributions.
What types of retirement savings arrangements are eligible for Coronavirus-Related Distributions?
Under the CARES Act, most types of tax-qualified retirement savings arrangements are eligible for Coronavirus-Related Distributions including
- Traditional IRAs
- Roth IRAs
- SIMPLE IRAs
- SEP IRAs
- 401(k)s
- 401(a) plans (e.g., profit sharing plans, money purchase plans, etc.)
- 403(a) and 403(b) arrangements
- governmental 457(b) plans

+Workplace Retirement Plan Loans

Does the CARES Act include special rules for loans taken from workplace retirement savings plans?
Yes, the CARES Act includes several provisions designed to provide Qualified Individuals with increased access to plan loans and increased repayment flexibility.
What changes does the CARES Act make to the limits on participant loans?
The CARES Act significantly increases the maximum amount that a Qualified Individual may take as a participant loan from a workplace retirement savings program.
Under the normal rules, plan participant loans are generally limited to the lesser of
1. 50% of the plan participant’s vested balance or
2. $50,000.
Under the CARES Act, workplace retirement saving plans are permitted—for a limited time—to allow loans to Qualified Individuals up to the lesser of
1. 100% of the Qualified Individual’s vested balance or
2. $100,000.
Is there a time limit on how long the CARES Act increased plan loan limits are available?
Yes. The CARES Act provides that the increased plan loan limit is only available for loans taken by Qualified Individuals within 180 days of the law’s enactment (including the date of enactment). Accordingly, unless extended by Congress, the option for increased plan loans will expire on September 22, 2020.
Are participant loans from a workplace retirement savings plan taxable like a plan distribution?
No. Plan loans are generally not taxable to plan participants provided the loan limits are adhered to and the loan is administered in adherence with the federal laws governing participant loans. The CARES Act provisions affecting participant loans are designed to help provide Qualified Individuals with greater access to funds through plan loans and greater flexibility through suspension of 2020 loan repayments.
Are employers required to make increased plan loan limits available?
No. The CARES Act does not mandate that workplace savings plans make increased plan loans available to Qualified Individuals.
Does the CARES Act provide relief from plan loan repayments?
Yes. The CARES Act provides that Qualified Individuals may forego plan loan repayments for the remainder of 2020.
Is the option for suspending plan loan repayments available for plan loans that were taken out prior to the enactment of the CARES Act?
Yes. Qualified Individuals are eligible to suspend repayments on plan loans for the remainder of 2020 regardless of whether their plan loans were preexisting or were taken after the CARES Act was enacted.
How does an individual go about requesting a suspension of plan loan repayments?
A Qualified Individual who wishes to take advantage of the CARES Act provision allowing suspension of plan loan repayment should consider contacting either their company’s Plan Administrator or their company’s human resource department.

+Required Minimum Distributions

Does the CARES Act make changes to the required minimum distribution (RMD) rules?
Yes, the CARES Act waives all RMD requirements for 2020. In addition, the CARES Act contains a special provision for individuals who turned 70½ during 2019 and were required to begin taking RMDs by no later than April 1, 2020.
Is the RMD waiver mandatory, or may individuals still take their 2020 RMDs if they want to?
The CARES Act eliminates the requirement that individuals must take a distribution during 2020. The Act does not preclude IRA owners or plan participants from taking discretionary distributions from their retirement savings during 2020.
If an individual already took their 2020 RMD, is there any way to put the funds back into their IRA or workplace retirement savings plan?
Potentially, yes. Individuals who have already taken mandatory distributions during 2020 but would have preferred to leave the amounts in their IRAs or workplace retirement plan may wish to consult with a tax advisor to determine if some or all of their distributions may qualify either for conventional rollover treatment or for repayment treatment as a Coronavirus-Related Distribution.
Is there a special rule in the CARES Act for individuals who turned 70½ during 2019?
Yes. Individuals who turned 70½ in 2019 had until April 1, 2020 —their “required beginning date” — to take their 2019 RMDs under the normal rules. The CARES Act contains a provision that waives the 2019 RMD requirement for some—but not all—of these individuals. If such individual took distribution of their 2019 RMD during 2019, the CARES Act RMD waiver does not apply. However, for those individuals who delayed their 2019 RMDs until 2020, the CARES Act RMD waiver is applicable (i.e., such individuals may forego both their 2019 and their 2020 RMDs).
Does the CARES Act have any impact on IRA owners and plan participants who reach age 70½ during 2020?
A different law that was enacted in late 2019, the SECURE Act, changed the age at which individuals must begin taking RMDs. Under the SECURE Act, individuals who reach age 70½ in 2020 or later are not required to begin taking mandatory distributions until age 72.

+Beneficiary Distributions

Does the RMD waiver apply to life expectancy payment distributions that are required to be taken in 2020 by IRA and employer plan beneficiaries?
Yes. The CARES Act waives 2020 mandatory life expectancy payment distributions for IRA beneficiaries and retirement plan beneficiaries. As with IRA owners and plan participants, beneficiaries may still choose to take discretionary withdrawals.
Does the CARES Act provide relief from mandatory distributions for IRA beneficiaries and retirement plan beneficiaries who are subject to the 5-Year Rule?
Yes. The CARES Act stipulates that beneficiaries taking withdrawals under the 5-Year Rule may disregard 2020 in determining the deadline by which all inherited funds must be distributed from the decedent’s inherited IRA or retirement plan. (Note: The 5-Year Rule is a distribution rule that requires a beneficiary to take complete distribution of all inherited funds by no later than December 31 of the fifth year following the year of the IRA owner’s or plan participant’s year of death.)
Does the CARES Act provide any relief for beneficiaries of IRA owners and plan participants who have passed away during 2020?
Generally, when an IRA owner or plan participant who is in distribution status passes away, their beneficiaries are responsible for taking distribution—before year end—of any outstanding current-year RMD amounts that were not taken prior to death. Due to the blanket waiver on all 2020 RMDs, beneficiaries of IRA owners or plan participants who pass away during 2020 are not required to take distribution of any undistributed, year-of-death RMDs. Beneficiaries, however, may still choose to take discretionary withdrawals.

IRS - Coronavirus-related relief for retirement plans and IRAs questions and answers