The CARES Act: Relief for Retirement Plans

By Published On: March 28, 2020Categories: Wealth Building4.1 min read

The recently passed Coronavirus Aid, Relief and Economic Security (CARES) Act offers comprehensive aid to many affected by the health crisis.  From small businesses, displaced workers to large corporations, the goal is clear: to lessen the potential economic damage.

Though much of the focus has been on the direct payments to taxpayers and lending facilities to small businesses, IRA owners and participants of employer sponsored retirement plans such as 401(k)s and 403(b)s will also benefit.  While in some cases, all IRA/Plan owners qualify, only those who are impacted (by meeting certain qualifications described later) qualify for others.

Specifically, the Act offers the following:

  • Suspension of Required Minimum Distributions (RMDs) for IRA owners (All qualify).
  • Reimbursement of Unwanted RMDs (All but non-spousal IRA beneficiaries qualify).
  • Penalty-free distributions from IRAs and employee sponsored plans (Impacted owners only).
  • Enhancements to loans from employer sponsored plans (Impacted owners only).

In this article, we will provide details and offer potential strategies in navigating each.  We also encourage anyone considering the options described below to confer with their tax advisors before proceeding.

It should be noted at the outset that several of these benefits can be realized only if the individual has been impacted by the Coronavirus.  According to several sources, an individual is considered impacted if they:

  • Have been diagnosed with COVID-19.
  • Have a spouse or dependent who has been diagnosed with COVID-19.
  • Have experienced adverse financial consequences as a result of being quarantined, furloughed or laid off or experiencing a reduction in work hours.
  • Are unable to work due to lack of childcare as a result of the virus.
  • Own a business that has closed or has reduced hours because of the virus.
  • Meet other IRS-approved conditions.


The CARES Act suspends all Required Minimum Distributions for 2020 (including those impacted and those unaffected, as defined earlier).  This includes distributions from Traditional, SEP and SIMPLE IRAs and employer sponsored plans and affects owners and beneficiaries. Non-spousal IRA beneficiaries with Inherited IRA accounts are also included in the suspension. IRA owners who deferred their 2019 RMD in order to take two RMDs in 2020 may receive a “double benefit”.


For IRA owners who have taken some or all of their RMD, they may qualify to return any unwanted portion.  To qualify, RMDs must have been taken within the last 60 days, OR if they were taken very early in the year (and the 60 day window has expired), account owners who can show an impact as defined above may still qualify.

Non-spousal IRA beneficiaries who have already taken their RMDs do not qualify for reimbursement.  Also, 2020 will be considered ignored for Non-Designated Beneficiaries (Charities, Trusts, Estates) who are required to distribute the inherited IRA over a five year period.

Longer Term Planning

The suspension and potential reimbursements of RMDs provides IRA owners with tax relief that can also be used for longer term planning.  Specifically, a one-time opportunity to convert pre-tax IRA assets into a Roth IRA.  How would this work?

Let’s revisit Roth Conversions:

Because Roth Conversion is accomplished by withdrawing some or all of your existing IRA and transferring those funds to a Roth IRA, IRA owners are subject to income tax on the amount of the withdrawal.  Additionally, Roth Conversions are NOT supplements for Required Distributions, meaning withdrawals for Roth Conversions must be in addition to Required Distributions.

The suspension and reimbursement of RMDs removes the tax barrier that prevented many IRA owners from considering Roth Conversions.  While the conversion is still a taxable event, it can be accomplished in 2020 without the additional taxes associated with a normal RMD.


IRA owners and participants for employer-sponsored plans are allowed maximum distributions (penalty free/potentially taxable) of $100,000, if they qualify as impacted.  Some of the tax benefits of this provision are:

  • Owners under the age of 59 ½ avoid the normal 10% penalty associated with early withdrawal.
  • No mandatory tax withholding.
  • Taxed in year of distribution (2020) or split evenly over a three year period.
  • Eligible to be repaid over three years.
  • Single reimbursement or partial over three years.
  • File amended returns for refund of taxes paid on distributions.

Owners should confer with their tax advisors on the optimal strategy of declaring income in one or multiple years.


Plan participants who qualify as impacted will also see changes to terms regarding loans against their 401(k) and 403(b) balances.

  • An increase in the maximum borrowed amount to $100,000 (from $50,000).
  • Increase in Vested Balance Available: From 50% to 100%…up to the $100,000 maximum.
  • Delay of Payments: Payments otherwise due from date of the loan are delayed up to one year.


As a result of the CARES act, the benefits and flexibility afforded owners of retirement assets have increased significantly.  We stand ready to advise and assist (along with your tax advisor) on the best course of action.

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