CARES Act: Impact on Retirement Accounts and Employer Sponsored Plans

  • Retirement
  • 4/17/2020
Woman Using Her Cellphone and Tablet in the Office

The CARES Act changes the rules about retirement plans for 2020. Find out if these changes can help you or your employees.

Key insights

  • The CARES Act brings new options for retirement plans in 2020.
  • Early withdrawal and enhanced loan provisions apply to those diagnosed with COVID-19 or suffering adverse financial consequences resulting from the pandemic.
  • RMDs, suspension of the five-year rule, and extended contribution deadlines are available to all who choose to take advantage of them.

The Coronavirus Aid, Relief, and Economic Security Act (CARES) is the largest fiscal stimulus bill in U.S. history, and it changes the rules about retirement plans for 2020. Here’s what you need to know.

Early withdrawal and enhanced loan provisions

The two changes discussed below apply if you meet any one of the following qualifications:

Would you like to talk with an advisor?
Contact us

  • You are diagnosed with COVID-19,
  • Your spouse or dependent is diagnosed with COVID-19, or
  • During the COVID-19 pandemic, you suffer adverse financial consequences as a result of quarantine, furlough, lay-off, work-hour reduction, inability to work due to lack of child care, or other factors as determined by the Secretary of the Treasury.

Take up to $100,000 without 10% penalty for early withdrawal

Coronavirus-related distributions of up to $100,000 from retirement accounts (IRAs, employer-sponsored retirement plans, or a combination of both) are exempt from both the 10% penalty and the mandatory 20% income tax withholding.

  • Distributions must be made within the 2020 calendar year.
  • Income taxes on a coronavirus-related distribution can be paid over a three-year period.
  • Money can be recontributed into a 401(k) or IRA within three years to avoid tax on the withdrawal altogether.

Enhanced loan provisions for employer-sponsored retirement plan

The maximum amount that may be borrowed from an employer-sponsored plan has doubled to 100% of the vested balance, up to $100,000. Any payments that would otherwise be owed on the plan loan from the date of enactment though the end of 2020 may be delayed for up to one year.

Suspension of 2020 required minimum distributions

All required minimum distributions (RMDs) are waived in 2020, including those for traditional IRAs, SEP IRAs, SIMPLE IRAs and inherited IRAs. Taxpayers who have already taken their RMDs for 2020 have the option of returning them within a 60-day period. If the first required distribution was not made in 2019, the April 1, 2020 distribution requirement is waived. Consider implementing the suspension carefully; should the effects of the pandemic drop you into a lower tax bracket, it may make sense to take the RMD.

The 5-year rule for non-designated beneficiaries is ignored for 2020

Typically, non-designated beneficiaries (e.g., charities, estates, non-see-through trusts) who inherit a retirement account from decedents who die prior to reaching their required beginning date must distribute the entire account within a five-year period from the account owner’s passing. The CARES Act allows 2020 to be ignored, or simply not counted as one of those five years.

Contribution deadlines for 2019 are extended to July 15, 2020

Along with the tax filing deadline extension, the deadline to complete 2019 IRA and HSA contributions has been extended to July 15, 2020.

Guidance for plan sponsors

Deadline of plan amendments
While you can start utilizing any of these provisions immediately, the plan must formally be amended no later than the last day of the plan year beginning on or after January 1, 2022.

DOL authority to postpone deadlines
The Department of Labor has authority under ERISA to delay deadlines due to public health emergencies, which could potentially give rise to some extensions of Form 5500 filing deadlines. As of now, the filing deadline for any Form 5500 previously due between April 1, 2020 and July 15, 2020 is now extended to July 15, 2020.

What options are there for Safe Harbor plans?
As an employer sponsoring a safe harbor plan, you are able to cease safe harbor contributions for the remainder of 2020. You must amend the plan and provide a notice to your plan participants 30 days prior to ending the safe harbor contributions. Removing the safe harbor provision will subject your plan to non-discrimination testing for the year.

How we can help


The pandemic may have altered your short- and long-term financial situation. CLA can help with retirement and financial planning services.


CLA can help you keep the future retirement and health benefits of your employees safe through employer-sponsored retirement plan design, compliance, and consulting.

Contact Us

Experience the CLA Promise