CARES Act Myths
More than one month has passed since the enactment of the CARES Act, yet there are still many widely held misconceptions about the retirement plan-related provisions. In this week’s Top of Mind, we attempt to dispel some of those myths.
Myth # 1: Anyone can take advantage of the new CARES Act loan and distribution provisions
While most plan sponsors are clear on this, many participants are under the impression that the new loan and distribution provisions are available to everyone, as is the ability to delay loan payments due in 2020. However, in reality, all of the expanded loan and distribution provisions, including the ability to delay 2020 loan repayments, are only available to qualified individuals affected by COVID-19. The only significant retirement-related provision that is available to all participants is the waiver of Required Minimum Distributions (RMDs) for 2020.
Myth #2: The CARES Act provides a one-year “holiday” from loan repayments
While the CARES Act allows participants to delay loan repayments due between March 27 and December 31 by a full year, there is nothing that indicates that 2021 loan repayments would be similarly delayed. Thus, absent from any future clarifying guidance, participants are only exempt from making loan repayments for approximately nine months, as a payment will be due in January of 2021. Also, it is important to note that the “holiday” is not one from the loan interest, as this continues to accrue on any loan repayments not made.
Myth #3: The CARES Act loan repayment extension and RMD provisions are mandatory
As explained in thisanalysis from Robert Richter, while the tax provisions of the RMD waiver are mandatory (the RMD requirement simply does not exist in 2020, for tax code purposes), plans appear to have the option to allow RMDs to be taken. However, the situation is a bit more uncertain with loan repayments. It was an optional provision the last time the IRS addressed a similar situation (Hurricane Katrina), thus it is certainly possible that the provision may be optional this time around, as well.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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