New Laws Impact RMDs, Hardship Loans and Withdrawals
Wespath has implemented changes to the retirement plans due to recent federal legislation: The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The SECURE Act was effective January 1, 2020, while the CARES Act is a direct response to the financial impact of COVID-19. Read on to learn how these laws may impact you.
Required Minimum Distributions (RMDs)
RMDs are distributions the Internal Revenue Code requires you to take from your retirement plans beginning at a certain point in time. The SECURE Act changed the date certain participants and their beneficiaries are required to begin RMDs and restricted the time period over which certain beneficiaries can spread out payments. The CARES Act waives RMDs from defined contribution (DC) plans that would have been due in 2020 to prevent individuals from being required to take distributions, as COVID-19 reduced the market value of many investments.
Due to the CARES Act, Wespath will not automatically issue 2020 RMDs. Participants impacted by these changes were sent a letter from Wespath in May.
Coronavirus-Related Distributions (CRDs)
CRDs are distributions outlined in the CARES Act, available only in 2020. Wespath has made these available to active participants in UMPIP or Horizon who meet the definition of a “qualified individual” (generally, participants who are impacted by a positive test or who are being harmed financially by COVID-19).
The legislation allows qualified individuals to take total distributions of up to $100,000 from their retirement accounts and offers special tax advantages: early distributions are not subject to the 10% penalty tax; income taxes due can be spread over three tax years; and distributions may be partially or fully repaid to the plan to reduce tax consequences and replenish retirement savings.
Qualified individuals already eligible for a retirement plan distribution can choose to treat any distributions made in 2020 up to $100,000 as a CRD on their tax return, and they will receive the same tax advantages.
Hardship Loan Repayment Delays
Hardship loans are available to active and certain retired participants in UMPIP and Horizon for specific financial needs. The CARES Act allows “qualified individuals” to request a delay of their loan repayments scheduled to be paid in 2020—for both existing and new loans; repayments won’t resume until 2021.
Please visit wespath.org/about-wespath/Coronavirus/Retirement for more information on RMDs, CRDs and hardship loan repayment delays.