In a continued effort to provide Plan Participants with as much information as possible in these trying times, BLBB Plan Services has prepared the following information on how the CARES Act may impact your Retirement Plan benefit.  This is not legal advice, rather it is an interpretation of the law at this point in time.  We are expecting continued updates to retirement plan provisions of the Act in the coming weeks and months and will keep you informed as such changes arise.  In addition to updates on the law, we are also waiting on document providers to add guidance on necessary plan amendments to enable plan participants to utilize provisions found in the CARES Act.

BLBB Services understands that times may be uncertain for you; however, please consider the affects withdrawing funds from your retirement account(s) could have on your overall financial plan.  Any decisions on whether to withdrawal should be well considered and in consultation with an advisor and/or accountant.

 On March 27, 2020, the United States Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  This is the largest rescue bill to date and provides economic relief to individuals, businesses, state and local governments, and healthcare systems that are financially impacted by COVID-19.  Part of the CARES Act Legislation provides much-needed access to retirement savings for those in financial distress due to COVID-19.  Such aid includes:

    • COVID-19 Penalty-Free Distribution Events
    • COVID-19 Plan Loan Maximum Limits Increased
    • COVID-19 Plan Loan Repayment Relief
    • 2020 Waiver of Required Minimum Distributions (RMDs)
    • COVID-19 Plan Amendment Relief


Penalty-Free Distribution Events

A Plan sponsor may allow qualifying participants to take a penalty-free distribution from their Retirement Plan.

What is a qualifying participant?

Any participant diagnosed with COVID-19 (may require CDC approved positive test results)

Any participant whose spouse or dependent has been diagnosed with COVID-19 (may require CDC approved positive test results).

Any participant who has experienced “adverse financial consequences” as a result of one of the following events or circumstances, provided they are COVID-19 related:

    • Quarantine
    • Furlough or layoff
    • Reduction in work hours
    • Loss of wages due to unavailability of childcare services
    • For business owners, a closure or reduction in operating hours or
    • “other factors as determined by the Secretary of the Treasury.”

A COVID-19 related distribution is treated as a permissible distributable event from any “eligible retirement plan” (401(k); 403(b); 457(b)) even if a participant has not qualified for any other distributable event      allowed under the Plan. (e.g., In-service, hardships or 59 ½ distribution.)

What sources are available for these withdrawals?

Participant contributions are available as well as, Plan document permitting, any additional fund sources such as employer contributions in which an employee is 100% vested.

How much can a participant withdraw?

Participants are eligible to withdraw up to $100,000 of their current account balance. There are no limits on the amount based on lost income or amount needed.

Limit is applied by aggregating ALL distributions from current tax-qualified accounts (including IRAs).

Distributions must be requested and distributed between January 1, 2020 and December 31, 2020.

What are the tax implications of taking such a withdrawal?

COVID-19 Related Distributions (CRDs) to a qualifying participant (see above for definition) will not be subject to the 10% early withdrawal penalty for individuals under the age of 59 ½.

COVID-19 Related Distributions (CRDs) are not considered eligible rollover distributions and therefore will not be subject to the current mandatory 20% tax withholding.  A participant is able to elect, at the time of the withdrawal, to have 0% withheld for taxes.  However, if they do not specify at the time of the withdrawal that they would like to NOT withhold, an automatic 10% withholding will be applied.

Due to the fact that this distribution is considered taxable income, a participant that elects such a withdrawal will need to pay income taxes on the full withdrawal amount.  However, the income tax payments due for these types of withdrawals can be spread over a 3-year period of time, from the date of the withdrawals, with a minimum payment of 1/3 of the full withdrawal amount payable each of the 3 years or 100% paid during the year of withdrawal.

What if a participant wants to “repay” their distribution?

The CARES Act will allow any portion of COVID-19 related withdrawal to be repaid, tax free, in one or more payments, on or before the three-year anniversary date of the withdrawal up to a maximum of $100,000.  Participants are not required to repay the full amount withdrawn.

If the participant previously reported such a withdrawal as income on their tax returns, they will be eligible to amend their income tax return to reflect the repayment.

Repayments can be made to a tax-qualified plan or IRA. If repaid to a qualified plan (ex. 401(k)), the deposit would be classified as a Rollover*

*Can only be done if the Plan allows for Rollovers

What if a participant does not “repay” their distribution?

If a participant receives a COVID-19 Related Distribution (CRD) and chooses not to repay any portion of their withdrawal within a three-year period of time, the participant forfeits the opportunity to repay any outstanding distribution balance and is therefore subject to pay income tax on the full amount withdrawn.


Plan Loan Maximums Limits Increased

How much can a participant take out in a plan loan?

As of  March 27, 2020 participant loan maximums increased to the lesser of:

    • $100,000; or
    • 100% of a participant’s vested balance

This increase is set to expire, as of right now, on September 23, 2020.


Plan Loan Repayment Relief

Can a participant delay repayment of their current loans or any new loans?

Yes… a participant is eligible for a 1-year extension for loan repayments of an existing or future outstanding loan if they are a qualifying individual (defined above) and the loan was executed between March 27th, 2020 until December 31, 2020.

When must a participant begin repayment of their loan(s)?

Plan loans with a maximum 5-year or 10-year loan term will not be affected by the 1-year extension delay.  Following the 1-year extension, any outstanding loan repayments must be recalculated to adjust for the delay in payment as well as any accruing interest during the delay. Repayments cannot exceed the distributed amount.


Waiver of Required Minimum Distributions (RMDs)

Are RMDs waived for the calendar year 2020?

Yes, required minimum distribution rules from defined contribution plans (401(k), 403(b), 457(b) and individual retirement plans – IRAs) are waived for individuals during the 2020 calendar year.

If an individual delayed their 1st RMD for 2019 until April, they are also allowed to waive this distribution, ultimately allowing them the option to waive two distributions (2019 and 2020).

What about beneficiary RMDs?

For Plans that require beneficiary RMDs to be distributed within 5-years of a participant’s death, calendar year 2020 is not included in the 5-year period distribution requirement calculation.

To summarize, the changes to the CARES Act are vast and can cause some confusion to both Plan Sponsors and Plan Participants. This document will help field initial questions you might have, but we are always available to assist in clarifying your current options.


Withdrawing from your retirement account(s) can have a big impact on your overall financial plan so please consult an advisor and/or an accountant before making any decisions.

 If you have any questions about the items listed here or would like to discuss your specific circumstances, please do not hesitate to contact Edward Barnes or Brianna March at (215) 643-9100 or and

BLBB does not provide tax advice nor practice law. Please see your licensed tax or legal professional who is familiar with your particular facts and circumstances.





[Download The CARES Act & the Impact for 401k Plan Participants]