• RPA Editorial Team

Do you know how the CARES Act impacts your plan?

RPA is here to assist clients and advisors in answering questions they may have regarding the CARES Act, implementing any withdrawals or loans under the Act as applicable, and answering questions about participant terminations, layoffs, and furloughs.   Here is our current summary of the CARES Act, which may change as additional guidance is released by the IRS and DOL:

1.) A plan may permit in-service coronavirus-related distributions, until 12/31/2020, from an Eligible Participant’s vested account balance without regard to the normal withdrawal restrictions


  • Limited to $100,000, aggregated across all plans of the employer or controlled group.

  • Not subject to 20% mandatory tax withholding, however, 10% withholding applies that the participant can opt-out.  Federal and state taxes still apply and would be paid by the participant later.

  • Exempt from 10% early withdrawal penalty generally applicable to distributions made to participants who are 59-1/2 or younger.

  • Eligible to be indirectly rolled (“repaid”) into an IRA or employer plan within 3 years from the date the distribution is taken.

  • Amounts not indirectly rolled into an IRA or employer plan are included in gross taxable income, ratably, over 3 tax years, unless the participant elects to include all amounts in a single tax year.

  • The plan will require an amendment to be signed at a later date.  The Amendment fee is $275.

2.) Upon the request of an Eligible Participant, plan sponsors must suspend loan repayments due on outstanding loans that are in good order for a period of up to 12 months. The suspension period is to be added to the original loan term when repayments, including accrued interest, resume, regardless of the length of the loan’s original term. This applies to loan repayments due through December 31, 2020.  Whether repayments must restart in January 2021 or March 2021 is currently unknown and we will provide additional guidance when it is available.  The plan will require an amendment to be signed at a later date, and RPA plans to do this at no cost for clients using an RPA provided plan document.

3.) A plan may allow Eligible Participants to take loans up to the lesser of $100,000 or 100% of the participant’s vested account balance.  Available until 09/23/2020.  RPA believes that the in-service distribution option above may have better outcomes for participants who may not have the financial means to have large loan repayments deducted from payroll.   Although the loan repayments can be deferred for one year, personal financial situations may not be optimal at that point, and having up to $1,900 a month deducted from paychecks may cause additional hardship.  The plan will require an amendment to be signed at a later date.  Amendment fee is $275, waived if combined with the in-service distribution amendment.

4.) Required Minimum Distributions (RMD) that must be taken in 2020 may be waived for retirement plans, except defined benefit plans.  RPA will be suspending 2020 RMDs for all clients using an RPA provided plan document.  The plan will require an amendment to be signed at a later date, and RPA plans to do this at no cost.

CARES Act Eligible Participant:

  • Diagnosed with a coronavirus (COVID-19 or SARS-CoV-2) illness.

  • Has a spouse or dependent diagnosed with a coronavirus illness.

  • Experiences “adverse financial consequences” as a result of a quarantine, furlough, lay-off, reduction in work hours, business closure, the lack of childcare, or other factors determined by the IRS due to the coronavirus emergency.

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