On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed and enacted with the goal of providing emergency health care and economic assistance during the COVID-19 global pandemic. This legislation addresses concerns ranging from small business interruption to individual, family, and business economic relief. While the legislation contains a myriad of economic and healthcare response-related provisions, this summary focuses on one aspect of the economic provisions – those provisions relevant to retirement plans, retirement accounts, and certain health plans.
The CARES Act waives the additional 10% tax on early withdrawals of up to $100,000 from a retirement plan or individual retirement account (IRA) for an individual:
The CARES Act permits those individuals to pay tax on the income from these distributions ratably over a three-year period. In addition, those individuals are allowed to repay that amount tax-free back into the plan over the next three years. Those repayments would not be subject to the retirement plan contribution limits.
The CARES Act doubles the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. Individuals with an outstanding loan from their plan with a repayment due from the date of enactment of the CARES Act (March 27, 2020) through December 31, 2020, can delay their loan repayments for up to one year.
Plan participants in defined contribution plans and IRAs may waive their Required Minimum Distribution for 2020. This would include those who turned 70.5 in 2019 and postponed their distribution to 2020. Those participants who already received a 2020 RMD may rollover that payment for this year.
Retirement plans can adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans, provided the plan is amended on or before the last day of the first plan year beginning on or after January 1, 2020.
Health plans may not impose any cost-sharing (deductibles, copays, coinsurance, etc.) for screening visits related to COVID-19. This provisions also covers any cost-sharing related to vaccinations.
While not required, a High Deductible Health Plan may offer free telehealth to plan participants prior to meeting the plan deductible. This new offering will not impact the ability to make an HSA contribution.
When the ACA was passed a decade ago, account balance health plans, such as flexible spending accounts and health savings accounts, among others, could no longer reimburse over the counter health expenses. This prohibition has been repealed effective January 1, 2020.
P&N is continuously monitoring legislation dealing with the unprecedented financial and economic impacts of COVID-19. If you have any questions regarding retirement plan hardship and loan rules, please contact your P&N tax advisor.