Information on the CARES Act, passed in response to the COVID-19 outbreak, and its impacts on your retirement account.
COVID-19 has had a substantial impact on all of us, and we are incredibly sensitive to everything you are going through at this time. As such, please know that we are working diligently to create a smooth and swift process for any COVID-19 related requests, and will continue to provide updates as they become available. In the meantime, please refer back here as often as needed for answers to frequently asked questions.
I have been financially affected by the COVID-19/Coronavirus pandemic How can I access the funds in my retirement account?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, offers a couple of options to allow for easier access to the funds in your retirement account. These options include:
- The ability to take a distribution from your account up to $100,000 and defer paying taxes on the money for up to 3 years. The Act will also allow you to pay the money back into the plan to avoid locking in any market losses.
- The ability to take a loan from your retirement account up to $100,000 or 100% of your vested balance (the normal limits are $50,000 or 50% of your vested balance). In addition, you can defer any loan repayments for up to a year on new and existing loans. Currently, this is only for loans requested from March 27, 2020 until September 23, 2020.
How do I qualify for these new options outlined by the CARES Act?
To qualify for special conditions in the CARES Act, you must meet the following criteria:
- Either you, your spouse or a dependent has been diagnosed with COVID-19 by a CDC-approved test; and/or
- You have experienced a financial impact because you have been let go, quarantined, furloughed, had your hours reduced, or found yourself unable to work because your employer closed for business or you need to provide child care due to the virus.
Does my employer have to do anything to make CARES Act options available?
Yes, your employer has to elect to make these options available. We are in the process of asking plan sponsors if they wish to offer any of the CARES Act options.
How do I take a COVID-19/Coronavirus-related distribution or loan?
Once we receive confirmation from your employer that they wish to make these options available, we will update our in-portal forms to allow for these requests.
To request a COVID-related distribution:
- Log in to your portal
- Click Withdraws & Rollovers
- Select Withdraw from Balance
- Under Reason for Withdrawal, select COVID-related distribution
- Confirm that you meet the COVID-related distribution requirements (above)
To request a COVID-related loan:
- Log in to your portal
- Click Withdraws & Rollovers
- Select Take a Loan
- When asked why you’re requesting a loan, select COVID-related
- Confirm that you meet the COVID-related loan requirements (above)
- Select whether you’d like to defer repayment of the loan for a year
I already took a distribution from my plan in 2020. Can I count this as a COVID-19/Coronavirus-related distribution?
Yes, as long as you meet the criteria for the qualifications listed above. Special considerations include:
- If your distribution was for more than $100,000, the excess amount is not treated by these special new rules. If you are under age 59 ½, the amount above $100,000 will be subject to a 10% penalty and a 20% mandatory withholding. In addition, the distribution will be included in your gross income and it cannot be repaid back to the plan.
What happens to my loan if I am let go, furloughed, or take a leave of absence (such as if I get sick or care for a family member who is sick)?
Depending on your plan, you may be required to pay back your loan at the time of your termination. If your termination was related to COVID-19/Coronavirus, you may be able to convert your loan into a COVID-19/Coronavirus-related distribution which would waive any early withdrawal penalties and allow you to defer tax payments as stated above.
What are the fees to take out a loan or distribution?
The fees to take out a loan or distribution vary depending on your plan. To access a list of the fees associated with these transactions, login to your portal -> select my plan -> select notices from the dropdown -> click fee disclosures -> scroll down to section V.
I already have an outstanding loan, however, I’m going through a difficult time financially. What are my options?
If you qualify as “impacted by Coronavirus” as specified above, you may be able to delay the repayment of your loan. In general, loan repayments that are supposed to be made through December 31, 2020 can be delayed by one year. Please contact firstname.lastname@example.org so we can assist.
Can I take a COVID-19/Coronavirus-related distribution from my plan if I’m not currently employed at the plan sponsor, or may be let go/furloughed?
Yes, you may still be eligible for a COVID-19/Coronavirus-related distribution even if you are not currently employed. Please contact us at email@example.com so that we can assist you.
I received an RMD earlier in 2020. Does the CARES Act impact me?
If you choose to do so and you qualify, you may be able to treat your RMD as a COVID-19/Coronavirus-related distribution instead. This means that you may be able to spread out the tax impact of the distribution over three years. We may need to review your plan documents to confirm your qualification. However, it would be best for you to speak with your accountant or financial advisor first as Vestwell is not a law firm or financial advisor and we do not offer individual financial or investment advice.
I’ve just turned 70 ½ and I am supposed to start taking distributions from my plan in 2020. What is the impact on me?
If you turned 70½ in 2019, you would normally need to take a Required Minimum Distribution (RMD) from the plan in 2020. The CARES Act, however, may change that for you. Please see below for the scenario which best applies to you:
- If you have not yet taken any RMD distribution, then no distribution is required in 2020 (for the 2019 distribution year) if your plan sponsor agrees to the waiver of RMDs for 2020.
- If you have taken a RMD distribution after Dec. 31, 2019, it is subject to the waiver for 2020 (if your plan sponsor allows it) and the amount can be spread out over three years in your tax returns.
- If your RMD distribution was taken in 2019, then no relief is available.
I just lost my job, what should I do with my retirement account?
This is an incredibly difficult time and we are sorry about your situation. Unfortunately, Vestwell is unable to provide investment advice. We recommend you contact the advisor on your plan, your personal financial advisor, or your tax specialist.