COVID-19 Relief Law - Retirement Account & Student Loan Relief
The Coronavirus Aid, Relief, and Economic Security ("CARES Act") has provided the following relief for Retirement Accounts and Student Loans:
The CARES Act waives all required minimum distribution requirements for tax-qualified defined contribution plans, including 401(k) plans), 403(a) and 403(b), government-sponsored Section 457(b) plans and IRAs for the calendar year 2020.
The 2020 Required Minimum Distributions ("RMDs") waiver applies to individuals who have already been taking RMDs or those who would have taken their first RMD in 2020, including: (1) an individual who is 72 or older in 2020; (2) an individual who reached the age of 70½ prior to January 1, 2020; and (3) certain death beneficiaries.
The traditional 10% early withdrawal tax penalty from qualified retirement plans for coronavirus-related distributions ("CRDs") made between January 1, 2020, and December 31, 2020 is now waived under the CARES Act.
Qualified individuals may take up to a $100,000 distribution (in aggregate) from their qualified retirement plans.
To qualify for the waiver, one or more of the following must apply:
- Diagnosed with COVID-19;
- A spouse or dependent is diagnosed with COVID-19;
- or who experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the U.S. Treasury Secretary.
The Act allows a taxpayer to repay the funds to a qualified retirement plan during the three-year period beginning the day after the date on which the individual receives a CRD without having the amount recognized as income for tax purposes.
Income taxes will still be owed on withdrawn amounts that are not repaid, but individuals are permitted to pay tax on the withdrawal income over a three-year period.
In general, loans taken from a qualified retirement plan account are limited to the lesser of $50,000 or 50% of the vested balance and must be paid back within five years.
The Act doubles these retirement plan loan limits for qualified individuals eligible for a CRD to the lesser of $100,000 or 100% of the participant's vested account balance. To qualify, the loan must be made within 180 days after the enactment of the Act. The participant won't owe income tax on the amount borrowed from the 401(k) if it's paid back within five years.
IV. Relief for Student Loan Borrowers
The Act expands a tax code provision that allows employers to contribute tax-free, tuition assistance to now provide temporary assistance with student loans.
From March 27, 2020 through December 31, 2020, employers may reimburse employees up to $5,250 for loan repayment assistance or other education-assistance payments.
The Act offers relief for most federal student loan borrowers (including those who have direct loans, Perkins loans and Federal Family Education Loans owned by the U.S. Department of Education) by automatically suspending monthly payments from March 13, 2020 to September 30, 2020. While loan payments are suspended, interest will not accrue.
The Act relief does not apply to private student loans.
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