The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. This $2 trillion economic relief package provides a financial backstop to individuals and businesses that are adversely affected by the COVID-19 pandemic.

Among the relief measures extended to individuals is a temporary suspension of certain restrictions on access to retirement funds. To be eligible for a special distribution under the CARES Act, the following criteria must be met:

• The distribution must occur no later than December 31, 2020
• The individual must be adversely affected, medically and/or financially, by COVID-19
• The individual must certify that the distribution is being made in accordance with the CARES Act

Individuals can access retirement account funds under the CARES Act by either a distribution or a loan.

Distributions

Distributions of up to $100,000 per individual will be exempt from the 10% excise tax that normally applies to distributions made prior to age 59 ½ that do not meet the exemptions specified in Section 72(t) of the Internal Revenue Code.

To the extent that the CARES Act distribution is required to be included in gross income for a taxable year, such amount can be included ratably over a three-year period beginning with the taxable year.

An amount up to the amount of the CARES Act distribution can be repaid to any eligible retirement plan that accepts rollovers up to three years following the date of the withdrawal. For this purpose, such amount is treated as an eligible rollover and assumed to have been transferred to the receiving account within 60 days of the distribution date. The mandatory 20% withholding tax on eligible rollovers, as described in Section 3405(c) of the Internal Revenue Code, does not apply.

Loans

Permitted loan amounts will be temporarily increased for the 180-day period following the enactment of the CARES Act into law (March 27, 2020 to September 23, 2020). During this period, the maximum permitted loan amount will be the lesser of:

1. $100,000 (an increase from $50,000), and
2. 100% of the vested accrued benefit (an increase from 50% of the vested accrued benefit).

In accordance with Internal Revenue Code Section 72(p)(2)(B), a permitted loan must have a repayment period of five years or less with equal installments at least as frequently as every calendar quarter.  For any installments due between March 27, 2020 and December 31, 2020, the due date is extended one year for individuals adversely affected by COVID-19, regardless of the date of the initial distribution.