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CARES Act Investor Highlights

The Coronavirus Aid, Relief, and Economic Stability (CARES) Act was enacted on March 27th 2020. It was the largest stimulus bill ever approved by Congress. Of particular note for investors, the CARES Act includes significant provisions for retirement accounts, including the following:

RMDs waived for 2020. No retiree, regardless of age, is required to take a required minimum distribution (RMD) this year. RMDs from IRAs and most 401(k) plans have been waived for 2020. The relaxing of rules is intended to help retirement account holders recover from losses. However, these rule changes should not be confused with other recent revisions to the age at which an individual must begin taking an RMD, from 70½ to 72.

Several questions about this provision are not specifically addressed in the CARES Act, including whether retirement account holders who took an RMD early in 2020 can roll it back outside the normal 60-day window. This and other questions are expected to be addressed in IRS guidance in coming weeks.

Special hardship withdrawals. Individuals affected by the coronavirus may take a penalty-free hardship withdrawal from a retirement account of up to $100,000. Those who take this withdrawal would owe taxes, but repayment of both the taxes and the withdrawal may be spread over three years, and any repayment will not count against the contribution limit for that year. Moreover, an individual who repays the withdrawn amount is eligible for a refund of the taxes paid on the withdrawal.

Increased loan maximums. Instead of a withdrawal, an individual may take a loan of up to $100,000 (an increase over the usual maximum of $50,000) from a retirement account in 2020. The normal 50% of account balance limit would be temporarily waived. The loan must be taken within 180 days of the law's enactment on March 27th. In addition, no loan repayment is required for the first year.

Tax Day changes. The IRS has changed the federal tax filing deadline from April 15 to July 15. The deadline for making a 2019 IRA contribution also has been extended to July 15. Most states—but not all—have also changed their filing deadlines to align with the new federal date.

For a more detailed explanation of these changes, please see the April 28th Forbes article: How the CARES Act Eases Retirement Account Rules During COVID-19, by Emily Guy Birken.

Newground thanks our primary custodian, Schwab Institutional, for their helpful overview of the CARES Act investor provisions, which served as a basis for this report.