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Understanding the CARES Act

Coronavirus Aid, Relief and Economic Security Act (CARES Act) was enacted on Friday, March 27, 2020 and provides for aid and assistance to individuals and businesses as the country deals with the coronavirus pandemic. The CARES Act contains numerous provisions and provides over $2 trillion worth of financial stimulus designed to help individuals, families, businesses, nonprofits and healthcare workers and providers. There are other changes that are outlined in the CARES Act, but for this purpose we are just focusing on retirement account related questions.

Frequently Asked Questions for Retirement Accounts

What impact does the CARES Act have on retirement accounts?

The CARES Act includes several provisions that make temporary changes to the federal laws governing IRAs and workplace retirement plans (e.g., 401(k) plans) including:

Suspending all required minimum distributions (RMDs) from IRAs (including inherited IRAs) and workplace retirement plans for 2020.
Penalty-free withdrawals up to $100,000 per person for “qualified individuals” (see FAQ below) from IRAs and workplace retirement savings plans. These withdrawals are eligible for flexible taxation and repayment options not generally available for retirement savings distributions.
Cares Act distributions may be taxed pro-rata over three years if desired, and/or repaid back into plans within three years from the distribution date.
Increasing loan limits and suspension of loan repayment requirements for qualified individuals who have (or who take) a loan from their workplace retirement savings plans.
The higher loan limit is only available if the employer plan allows, and is limited to new loans taken within 180 days from CARES Act enactment.
Plans must allow participants who are qualified individuals to suspend 2020 loan repayments, if the participant desires.

Who is considered a "qualified individual"?

A qualified individual is someone who has been diagnosed with the virus, is the spouse or dependent of someone who was diagnosed, or has had adverse financial consequences as a result of the Covid-19 pandemic.

How does the CARES Act impact my RMDs?

All RMDs have been suspended for 2020, including inherited IRA RMDs, however you may still take distributions from your retirement accounts.

When will I receive my 5498 form for IRA contributions?

The 5498 form reports IRA contributions (including catch-up contributions) and the fair market value of an IRA. If you made an IRA contribution, 60-day rollover, or direct rollover for the reporting year, you'll get a 5498 form. Usually we provide this form at the end of January. If you make a contribution for 2019 after we generate your 5498, you will receive a corrected form with the updated contribution information at the end of May. This year the deadline to make 2019 contributions to Roth and traditional IRAs was extended to July 15, 2020, to provide relief from the effects of COVID-19. As a result, 5498s will be issued after July 15, 2020. Please continue to check our important tax dates in case the availability date changes pending additional guidance from the IRS.

I already took my RMD for 2020. Is there a way to put the money back into my IRA?

You may have the ability to roll the RMD amount you have taken so far for 2020 back into your IRA, however, the 60-day rollover rules would still apply. Additionally, the IRA-One-Rollover-Per-Year-Rule still applies. Please consult with your tax advisor before putting money into or taking funds out of a retirement account.

Does the RMD waiver apply to life expectancy payment distributions that are required to be taken in 2020 by IRA and employer plan beneficiaries?

Yes. The CARES Act waives 2020 mandatory life expectancy payment distributions for IRA beneficiaries and retirement plan beneficiaries. As with IRA owners and plan participants, beneficiaries may still choose to take discretionary withdrawals.

Does the CARES Act provide relief from mandatory distributions for IRA beneficiaries and retirement plan beneficiaries who are subject to the 5-Year Rule?

Yes. The CARES Act stipulates that beneficiaries taking withdrawals under the 5-Year Rule may disregard 2020 in determining the deadline by which all inherited funds must be distributed from the decedent’s inherited IRA or retirement plan. (Note: The 5-Year Rule is a distribution rule that requires a beneficiary to take complete distribution of all inherited funds by no later than December 31 of the fifth year following the year of the IRA owner’s or plan participant’s year of death.)

Does the CARES Act provide any relief for beneficiaries of IRA owners and plan participants who have passed away during 2020?

Generally, when an IRA owner or plan participant who is in distribution status passes away, their beneficiaries are responsible for taking distribution—before year end—of any outstanding current-year RMD amounts that were not taken prior to death. Due to the blanket waiver on all 2020 RMDs, beneficiaries of IRA owners or plan participants who pass away during 2020 are not required to take distribution of any undistributed, year-of-death RMDs. Beneficiaries, however, may still choose to take discretionary withdrawals.