The CARES Act and Your 401(k) Plan: What You Need to Know

Posted By Mike Meyer, Thursday, April 9, 2020


By John Fisher, CFP Vice President, Wealth Management, GCG Financial

There are several 401(k) provisions that have been created as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act that you need to be aware of. Here is a brief overview of the provisions, as well as a link that has the provisions in more detail for you.

Withdrawal Provisions (Coronavirus Related Distribution up to $100,000)

  • The maximum amount an individual can withdrawal as a Coronavirus Related Distribution is $100,000.
  • The 10% early withdrawal penalty tax is waived on Coronavirus Related Distributions from a retirement plan or IRA. Individuals can pay the income tax on the withdrawal ratably over three years. The act allows individuals to repay the amount distributed tax-free back to the plan. Repayment will not be subject to retirement plan contribution limits. When the participant repays the hardship distribution, they will need to file amended tax return.

Loan Provisions (Increased to $100,000)

  • The act has enhanced the plan loan provisions for a loan taken by an individual that meets the requirements for a Coronavirus Related Distribution.
  • A participant who meets the requirements can take up to the lesser of 100% of their vested balance, up to $100,000, for loans taken within 180 days of March 27, 2020.
  • The act also provides that for "qualified individuals," any repayment that would otherwise be owed on a plan loan through the end of 2020 may be delayed for up to one year.

Minimum Required Distributions (Waived for 2020)

  • Waives the required minimum distributions (RMD) from retirement plans and IRAs for 2020. This applies to the RMD for 2020, but also to the RMD that is required to be taken before April 1, 2020, for individuals who turned 70½ in 2019.

Contact your recordkeeper or plan advisor for details. We recommend that any withdrawals should be discussed with a participant's accountant and financial advisor prior to taking such withdrawals. Here are more details on the CARES Act.

What is a "Coronavirus Related Distribution"?

A "Coronavirus Related Distribution" is a distribution taken prior to December 31, 2020, for an individual:

  • Who is diagnosed with COVID-19;
  • Whose spouse or dependent is diagnosed with COVID-19;
  • Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, or closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  • Who meets other criteria determined by the Secretary of the Treasury.

The administrator of the plan can rely on an employee's certification that the employee satisfies one of the conditions for a Coronavirus Related Distribution.

John Fisher is a financial planner with GCG Financial, focused on serving small to medium-sized businesses and their owners. He works closely with clients to develop, implement and review their financial strategies. Fisher and his team provide expert, objective guidance for group insurance benefits, 401(k) and profit-sharing plans, deferred compensation plans, executive benefits, and a wide variety of investments. He also helps business owners navigate through the complex financial landscape they face every day, advising on personal financial planning, succession planning, tax-efficient profit-sharing strategies and more.

Certain individuals associated with GCG Financial offer investment advisory services through Alera Investment Advisors, LLC and are registered to offer securities through Triad Advisors, LLC, Member FINRA/SIPC. Additional information about registered individuals can be found on FINRA's BrokerCheck. GCG Financial and Alera Investment Advisors are not affiliated with Triad Advisors, LLC. Information provided by herein should not be considered tax or legal advice. Should you require tax or legal information, please consult your tax advisor or attorney.

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