CARES Act Retirement Plan Changes

The Coronavirus Aid, Relief, and Economic Security (CARES) Act offers relief to individuals with some major changes to retirement plans in the near-term. These temporary new rules apply to both current retirees and those saving for future retirements.


Under normal circumstances, individuals with IRAs or 401(k)s who are over the age of 72 must take required minimum distributions (RMDs) each year.* Your RMD is calculated by the life expectancy factor assigned to your age, then divided by your retirement plan’s account balance from December 31 of the prior year.

The CARES Act, however, has created a provision that lifts RMDs for 2020. Depending on your tax bracket, it may or may not make sense to take out the money.


Tapping retirement funds is something we should all try to avoid, but sometimes circumstances leave us no choice. That is why the government has waived penalties when you take out an early distribution from an IRA or 401(k) before retirement age. While income tax is still due, the 10% penalty is removed for any distribution up to $100,000 from January 1, 2020 to December 31, 2020. This is meant to help with cash flow for those who have been financially impacted by the pandemic.


If you have been impacted by COVID-19 in some way, you may qualify for a larger 401(k) loan amount. Typically, you can borrow up to $50,000 or half of your balance amount. Between March 27 and December 31, 2020, however, you can borrow up to $100,000 or 100% of your 401(k) account balance, if less, as part of the CARES Act provisions.

Qualifying circumstances include you, your spouse, or dependent being diagnosed with COVID-19 or financial consequences from the pandemic like losing your job. Consult your tax advisor on how to qualify and what type of certification you need.

*Age 70 is a new age limit effective 2020.