It’s no secret that America has suffered drastic challenges in the past few months. Along with experiencing unprecedented loss of life, millions of Americans have endured the temporary or permanent loss of employment as businesses around the nation continue to close their doors. Moreover, the single stimulus check did little to fill the void for families. In an effort to ease the burden, Congress passed the CARES Act in March of this year.

Also known as the Coronavirus Aid, Relief, and Economic Security Act, CARES enables those affected by COVID-19 to access their retirement plans early. Keep reading to learn more about CARES and coronavirus-related distributions to find out if they could be a solution to your financial planning challenges.

 

Understanding the CARES Act

The CARES Act was designed to help retirement plan participants who have been affected by the coronavirus pandemic. A $2.2 trillion economic stimulus bill, CARES provides for the following:

  • COVID-19-related distributions
  • Higher maximum loan values
  • Suspension of loan repayments through the end of the year

Additionally, CARES includes a $350 billion Paycheck Protection Program (PPP) for small businesses, extended unemployment benefits, funding for state and local governments, support for hospitals, and stimulus checks.

 

Who Is Eligible for Additional CARES Benefits?

Not all individuals qualify for additional benefits under the CARES Act. To be considered a “qualified individual,” a participant must meet one or more of the following criteria:

  • Test positive for COVID-19 (with a CDC-approved test)
  • Have a spouse or family member in the same household as them who tested positive for COVID-19
  • Be unable to work due to a lack of childcare
  • Suffer financial hardship as a result of having to quarantine, being laid off, furloughed, or having work hours reduced

Note that the IRS expanded the definition of financial hardship to include those individuals whose self-employment income levels fell as a result of the COVID-19 pandemic. Additionally, those who had a job offer rescinded or a start date delayed because of COVID-19 qualify for these benefits.

 

Understanding Coronavirus Related Distributions

The CARES Act also allows certain individuals to take distributions from their retirement plans. Through December 30, 2020, qualified individuals can treat up to $100,000 in distributions as “coronavirus-related.” These funds must come from eligible plans, including 401(k), 403(b) plans, governmental 457(b) plans, and IRAs. Under normal circumstances, these plans can only distribute funds and avoid the early distribution penalty, after qualifying events, such as death, disability, or job loss.

It’s worth noting that individuals can opt to repay all, some, or none of their coronavirus-related distributions with the exception of distributions from Inherited IRAs. Repayments within 3 years after the distribution was received will be treated as though they were repaid in a direct trustee to trustee transfer so that you do not owe federal income tax on the distribution.  Consult your tax advisor to get guidance on potential amended returns and refund of the tax attributable to the distributions. Depending on your financial circumstances, additional planning strategies and benefits may be available by incorporating Coronavirus Related Distributions into your overall plan.

 

Trust Concentrum With Your Family’s Financial Health

At Concentrum Wealth Management, we offer holistic financial planning for each phase of wealth accumulation. Our mission is to help all of our clients plan for the retirement of their dreams.

 

For more on how we can work together to achieve your goals, call today at (408) 840-4030, or contact our team online.