The CARES Act: Q & A


The CARES ACT created new forms of distributions that are directly related to the effects of the Coronavirus on retirement plan participants.

“Coronavirus” related distributions include any distribution between March 27, 2020 and December 31, 2020 to a person who has one of the following:

a.      A personal diagnosed (or diagnosis of a spouse or dependent) of COVID-19 by a test approved by the CDC

b.      Adverse financial situation due to being furloughed, quarantined or laid off or having their paid work hours reduced to Coronavirus or business reduction or closure

c.      An employee must provide to the employer certification of any of the above requirements in order to take a “Coronavirus” related distribution

d.      An employer may rely on an employee’s certification that these conditions are met (this includes transmission of the information through electronic medium (email).

e.      Plans may be amended to allow for these “Coronavirus” withdrawals, but it is optional on whether the employer wants to allow this type of distribution

(this only applies to plans that had previously elected this type of distribution)

The “Coronavirus” distribution is different than a hardship distribution. A participant may be eligible to take a hardship distribution (based on the specific criteria) if they aren’t eligible under the “Coronavirus” distribution option. Please review  your plan document for specifics on this type of distribution

Participants can take penalty free “Coronavirus” distributions of up to 100% of their vested account balance up to $100,000 if the distribution is taken by December 31, 2020

⬤ As a Plan sponsor you are obligated to enforce the limit across all members of controlled group (if applicable to your plan)


⬤ These distributions can be taken from 401(a) (ie, profit sharing, governmental plan, or any defined contribution plan), 401(k), 403(b), IRA, SIMPLE IRA, or 457(b) retirement plans


⬤ The participant will be allowed to “repay” the amount of the original distribution (or a portion of it) back into an eligible retirement plan or IRA. (It does not have to be repaid to the same retirement plan from which he/she received the distribution). They will have up to 3 years to pay back the distributed amounts. Those repayments will be treated as rollovers into the retirement plan or IRA. **Please note the IRS has not yet addressed how this will be done or how this will be handled from a participant’s personal tax perspective. We expect to see future guidance.


⬤ Coronavirus related distributions will be allowed to have the income from such distribution to be spread out over 3 years for income tax purposes. ** Please note the IRS indicated that the individual would have to amend his/her personal tax return after repayment. This applies to ALL distributions not just corona virus related distributions. Each individual will need to consult their tax preparer for proper application of any tax changes.


⬤ The 20% mandatory withholding – on a distribution from a retirement plan won’t apply


⬤ The 10% early penalty for a distribution prior to age 59 ½ will also not apply


⬤ An “eligible participant” to receive this distribution is an individual:

⦿ Who is diagnosed with the virus SARS-CoV-2 or with COVID-19 by a test approved by the CDC, or

⦿ Whose spouse or dependent is diagnosed with such virus or disease by such a test, or

⦿ Someone who experiences adverse financial consequences as a result of being quarantined, being furloughted or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to the virus, or the closing or a reduction in hours of a business owned or operated by the individual due to the virus.

⦿ The retirement plan issuing the distribution can rely on the employee’s certification that the above requirements have been met

The RMD rules changed with the SECURE Act that was passed at the end of 2019 and changed again with the recent passage of the CARES Act.  Prior to the passage of the CARES Act, anyone who turned 70,5 in 2019 must receive an RMD by 4/1/2020 and anyone who was already receiving annual RMDs (because they turned 70.5 prior to 2019) must also receive an RMD in 2020.  Anyone else could wait until age 72 to begin RMDs.  With the passage of the CARES Act, RMD’s will be waived in 2020including those participants that were to have first time distributions by 4/1/2020

⦿ If a beneficiary has a payout using the 5-year distribution option, they can waive the distribution for 2020

⦿ If an RMD was already made in 2020, it can be treated as rollover an accordance with the 60-day rollover rules

⦿ RMD waivers (as of this article date) do NOT apply to Defined Benefit plans, they will still be required to take their 2020 RMD

New loans or preexisting loans will be eligible for Coronavirus relief:

⦿ They must first meet the “Coronavirus” requirement (see the first question under this bulletin)


⦿ The maximum loan amount for qualified loans has increased from 50% or $50,000 to the new loan amount of 100% of the vested account balance or $100,000. This applies only to new loans taken between 3/27/2020 and 9/23/2020.


⦿ This applies to 401(k), 401(a), 403(b) and governmental plans that allow loans


⦿ For anyone that meets the “Coronavirus” distribution definition who has an outstanding loan balance on or after 3/27/2020 through December 31, 2020, loan payments are delayed by one year


⦿ All subsequent payments will take into account the delay and the interest accrued during the delay.


⦿ **Note these changes are optional, the plan sponsor can choose not to adopt these changes

Your plan will be required to have an amendment(s) to allow your plan to provide these “Coronavirus” distribution options. However, your plan can operate in good faith prior to adopting the amendment, the amendment will be required by the last day of the plan year beginning on or after January 1, 2022.