Over the last year, both before and after the current pandemic, there have been multiple law changes that have impacted retirement plans and retirement benefits. There have been many articles and constant commentary on these changes, but as we reach the end of 2020, it is a good time to review all of the changes.

On December 20, 2019, Congress signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act is designed to increase access to retirement plans, encourage more people to invest in retirement plans, and account for Americans’ longevity including increased time spent actively working. The SECURE Act contains provisions that affect owners of retirement plans during their lives and potentially impacts their estate plans.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress on March 27, 2020. The CARES Act provided economic assistance for small businesses and individuals, which included provisions related to retirement accounts.

Here is an overview of some of the important provisions:

Covid-19 Specific Provisions
1. Penalty Free Withdrawal in 2020: Under the CARES Act, a plan sponsor may choose to allow participants to take early withdrawals totaling up to $100,000 before December 31, 2020 without incurring the normal 10% penalty, if one of the following conditions are met:

1. The plan participant or the participant’s spouse or dependent is diagnosed with Covid-19 by a CDC-approved test; or
2. The plan participant “experiences adverse financial consequences” as a result of being quarantined, furloughed, laid off or having work hours reduced due to Covid-19; or
3. The plan participant is unable to work due to child care issues; or
4. The plan participant is a business owner and operator who has had to close or reduce business hours; or
5. The plan participant has experienced other factors as determined by the Secretary of the Treasury.

These penalty free distributions may be re-contributed to the retirement plan, or to another retirement plan within three years from the date of the distribution and such re-contribution will not count towards annual contribution limits without consequence. If the distributions are not re-contributed within the three-year time period, the distribution will be taxable (though not subject to penalties) and the participant may spread the income tax over a three-year period.

1. Increase in Potential Loan Amounts and Payback Time: If the plan sponsor chooses and if the plan document permits loans, the CARES Act allows participants to borrow the lesser of 1) 100% of his or her vested account balance, or 2) $100,000. It also allows borrowers an extra year (from 5 to 6 years) to pay back loans and no payments are due in 2020.

2. Required Distributions: For 2020, Required Minimum Distributions (“RMDs”) that would otherwise be required are no longer required and do not need to be made in 2020. The waiver of RMDs applies to all defined contribution plans (i.e. 401(a) plans, 401(k) plans, 403(a) plans, 403(b) plans, etc.).

3. Charitable Distributions: Although RMDs are not required to be taken in 2020, a participant may still take a qualified charitable distribution (“QCD”) up to $100,000. The QCD made directly to a charity will not be includable as taxable income.

The CARES Act increases the deductible limit of cash gifts to public charities to 100%, up from 60% for 2020.

There is also a new above-the-line deduction up to $300 for charitable deductions, which allows those taxpayers who do not itemize to gain some benefit from charitable contributions.

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