On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to address the
financial difficulties that have resulted from the COVID‐19 pandemic. Included in this law were provisions that
provide special coronavirus related distributions (CRD) for qualifying plan participants. Below is a brief summary of the new CRDs available and new loan provisions to qualifying participants.
Coronavirus Related Distribution:
Qualifying participants can request a distribution of up to $100,000 from the retirement plan without incurring a
10% early distribution penalty. There is no age requirement and you can take coronavirus‐related distributions
whether actively employed or not. You can request the entire amount in a one lump sum, or multiple payments, but all must be taken by no later than December 30, 2020.
There is a federal tax withholding requirement of 10%, but you may choose to waive it completely or withhold a
different amount at the time of distribution. The amount of distribution is subject to federal tax, but you will be able to spread the taxes owed on the distribution over three years.
You may repay the entire amount distributed to you within three years. This opportunity allows you to repay
some or all of the distribution to any qualified plan or IRA that accepts rollovers as a way to minimize your income
tax liability. This is different than a loan in that there is no interest and no periodic payment requirement, and the
ability to repay does not require an election at the time of distribution. Repayment can be in a single lump sum or
via installments of different amounts at different times, but the repayment window only runs for three years from
the date you first receive the distribution.
It is important to emphasize that this new CRDs only apply to individual plan participants that meet certain requirements. If you should choose to utilize either of these provisions, you must certify that you meet one or more of the conditions listed below.
You have experienced adverse financial consequences as a result of:
• having been diagnosed with SARS‐CoV‐2 or COVID‐19 by a test approved by the Centers for Disease Control and
Prevention,
• a spouse or other dependent (as defined in section 152 of the internal revenue code) being diagnosed with
SARS‐CoV‐2 or COVID‐19 by a test approved by the Centers for Disease Control and Prevention,
• being quarantined,
• being furloughed,
• being laid off or having work hours reduced,
• being unable to work due to a lack of childcare,
• being an owner of a business who has had to close the business or reduce hours worked in the business due to
the COVID‐19 virus.
Increase of Maximum Loan Amount
Under current rules the maximum loan amount available is the lesser of 50% of vested account balance or $50,000
reduced by the highest outstanding loan amount in the previous 12 months. The new rule increases the maximum
loan amount to the lesser of 100% of vested account balance or $100,000 reduced by the highest outstanding loan
in the previous 12 months. This provision has been incorporated into our plan but will expire on September 23, 2020.
The loan must still meet all other requirements and limitations set forth under the plan.
Loan Payment Suspension
Qualifying participants who currently have loans outstanding or who take new loans can suspend their loan
payments for the remainder of 2020. It is important to know that interest will continue to accrue on any loan where
payments are suspended.
Re‐Amortization of Loans with a Final Payment Date that is Later than 12/31/2020:
If a loan is suspended under
this provision, the loan will be re‐amortized to include the accrued interest and extend the loan duration for 12
months beyond the original final loan payment date. This re‐amortization will result in a new loan payment amount.
Payments, using this new payment amount, will begin as of the first payment due date in 2021.
Example: Loan with an original first payment date of 3/15/2018 with a final payment date of 3/15/2021. Payment
is suspended as of 4/15/2020 for the remainder of 2020. New payment is calculated by including the accrued
interest for the period 4/15/2020 through 12/31/2020 and by extending the final payment date to 3/15/2022.
Payments resume on 1/15/2021, using the new payment amount.
Re‐Amortization of Loans with a Final Payment Date of prior to 12/31/2020:
If a loan is suspended under this
provision, the loan will be re‐amortized to include the accrued interest and extend the loan duration for 12 months
beyond the original final loan payment date. This re‐amortization will result in a new loan payment amount.
Payments, using this new payment amount, will begin 12 months after the date of the suspension.
Example: Loan with an original first payment date of 9/30/2017 with a final payment date of 9/30/2020. Payment
is suspended as of 4/15/2020 for the remainder of 2020. New payment is calculated by including the accrued
interest for the period 4/15/2020 through 3/31/2021 and by extending the final payment date to 9/30/2021.
Payments resume on 4/15/2021, using the new payment amount.
Please note that this document was prepared based on our best interpretation of the law. Additional guidance from regulators is likely. This guidance may result in the information presented in this document being inaccurate.
If we receive information that is conflicting with what we have stated here we will send that information to you and post it on our website www.drdacpa.com. In the interim, please call us if you have any questions or if we may be of any assistance.
