Broker Check

Impact of the CARES Act - Part 2

April 21, 2020

Other Considerations for Retirement Accounts

Lauren initially wrote about the CARES Act, in this BLOG which focused primarily on a change brought about in this new law that impacts many of our clients – the waiving of Required Minimum Distributions (RMDs) for 2020.  She also touched on another retirement account change for this year, which is the elimination of the 10% early withdrawal penalty for coronavirus related withdrawals.

What’s the Catch?

First, we would highly encourage not tapping your retirement account early if possible.  We would keep early withdrawals from a retirement account as an option of last resort, but nevertheless it is an option for those severely impacted by COVID-19.  If this is an option you are left considering, here are some additional stipulations to consider:

  • The 10% penalty is waived for up to $100,000 of retirement account withdrawals related to coronavirus. Anything over that amount will still have a penalty.  This applies to IRAs as well as employer plans such as 401(k)s and 403(b)s.
  • Income taxes are still owed on these withdrawals, but you can now pay any taxes associated with that withdrawal over a 3-year period.
  • In addition, the affected individual has up to three years after the day of the distribution to roll over all or a portion of the amount back into the retirement account. The rollover can be made as a single or multiple repayment over that three-year period.

Other Retirement Account Changes:

Another retirement account option that we encourage considering ONLY in the midst of real financial hardship is retirement plan loans such as 401(k) loans.  Traditionally this allows 401(k) savers to temporarily borrow against their account value.  There are many considerations and potential pitfalls that should be considered before committing to a 401(k) loan.  So, what’s different after the CARES Act?

  • Before CARES Act:
    • The maximum loan you could take against your 401(k) was the lesser of $50,000 OR 50% of your vested balance. For example, if your vested balance is $20,000 than the most that could be borrowed was $10,000.
  • After CARES Act:
    • The maximum loan amount is increased to the lesser of $100,000 OR 100% of your vested balance. Using the same example, if your vested balance is $20,000 than the most that could be borrowed is now $20,000.

Again, we would highly encourage people facing hardships to consider other alternatives during this difficult time, but also recognize that the CARES Act changes create more flexibility around retirement accounts that can be utilized for those most impacted by the sudden stop to many parts of the economy.

We are here to answer any questions you may have regarding these changes, and hope this information may help someone you know whether it be a family member, friend, or neighbor that has been severely impacted during this challenging time. 

Stay safe and healthy!


Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation.  While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Investments and strategies mentioned may not be suitable for all investors. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.