COVID-19 Impact on Retirement Planning

By Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager

COVID-19 Impact on Retirement Planning

By Colin Hannifin, CPA, Business Assurance & Advisory Services Senior Manager | ERISA Team

Major Changes to Retirement Plans Due to Coronavirus (COVID-19) Pandemic

In March, the outbreak of COVID-19 was declared a pandemic by the World Health Organization. Since then, multiple relief initiatives have been enacted in an effort to counteract the economic impact of the pandemic and subsequent containment efforts. There has been a lot of coverage of the stimulus and the Paycheck Protection Programs, but the relief efforts have also included significant changes to retirement plans. Has your plan been updated to comply?

Changes to Retirement Plan Distributions and Permissible Loans

The biggest impacts were part of the Coronavirus Aid, Relief, and Economic Security Act (better known as the “CARES” Act), which was signed into law on March 27, 2020. Among its expansive provisions, the CARES Act includes the following changes for retirement plans:

  1. Permits an additional withdrawal of up to $100,000 for coronavirus-related distributions;
  2. Permitted an increase in the maximum allowable loan balance to the lesser of 100% of a participant’s vested balance or $100,000, coupled with relief from loan repayments; and
  3. Waive required minimum distributions for 2020.

New Permissions for Retirement Plan Distributions

The first provision allows participants to withdraw up to $100,000 (in the aggregate) from plans that have adopted this provision without incurring a 10% early withdrawal penalty and while avoiding the mandatory 20% federal income tax. The amounts must be withdrawn by a participant impacted by the coronavirus, including financial impacts, as clarified by the IRS in June of 2020. The amount will be considered federal taxable income ratably over the next three years. The amount withdrawn can also be re-contributed to the plan over the next three years without being counted towards contribution limits. This provision expires on December 30, 2020.

Changes to Retirement Plan Loans

The second provision allows eligible participants to take out increased loans from their retirement plans. Previously, the maximum allowable by law was the lesser of 50% of a participant’s vested balance or $50,000. These thresholds were doubled by this temporary provision, which expired in late September. However, qualified retirement plans can still elect to provide relief from loan repayments until December 31, 2020.

Required Minimum Distributions (RMDs) Waived 

Finally, the third provision waived 2020 required minimum distributions or “RMDs” and loosened the restrictions about considering such RMDs as rollovers. Further, it allows that if a participant would prefer to receive their RMD, that is permissible.

Many of these provisions have been enacted and already expired.  Others persist with an expiration in the near future – but the effects of the pandemic are broad and ongoing. With stimulus discussions continuing at the highest levels of government, the rules and opportunities can change at a moment’s notice.

Questions on 2020 retirement planning opportunities? Contact us. We can help.

Additional Resources:

Fourth Quarter 2020: Gift and Estate Tax Planning Opportunities

Individual Tax Provisions Contained in the CARES Act

Unclaimed Property: Adding Money to Your Wallet During COVID-19

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About the Author

Colin M. Hannifin

Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager

Colin is a Business Assurance & Advisory Services Senior Manager at Keiter. He has significant experience in public accounting for both the not-for-profit and private sectors. Colin’s clients rely on him for sound advice and insights on accounting regulations and changes that may impact their business.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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