CARES Act and Coronavirus Stimulus Retirement Changes
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  2. CARES Act and Coronavirus Stimulus Retirement Changes

How does the CARES Act/Coronavirus Stimulus Bill affect my Self-Directed Solo 401(k) and Corporate 401(k)?

The loan maximum for all Solo 401(k)s and Employer 401(k)s has been increased from $50,000 to $100,000. Your loan can be up to a full $100,000 instead of the normal of 50% of your balance.

What is the CARES Act?

Coronavirus Aid, Relief, and Economic Security Act is a bill passed by Congress in 2020 to respond to the rapidly evolving situation around COVID-19, unemployment, and disruption to income Americans are facing due to shelter at home restrictions and closing of non-essential businesses across the country. 

What is the loan provision normally of a Solo 401(k)?

Normally, a Solo 401(k) would be able to take out 50% of its balance, with a max of $50,000 loaned out for accounts with a fair market value of $100,000 and up in assets. 

Someone that had $60,000 in fair market value for their Solo 401(k) would only be able to take out a loan of $30,000

Any of these loans must be paid back within 5 years, with at least quarterly minimum payments according to an amortization schedule. 

You can read more on our knowledge base article. 

What about under 2020 for the CARES Act for the Solo 401(k)?

The loan provision under the CARES Act increases the $50,000 limit to $100,000, for qualified individuals, for loans made during the 180-day period beginning on March 27, 2020- the date of the enactment of the Act. A qualified individual is a person who would meet the requirements for a coronavirus-related distribution.

What is a qualified individual for an enhanced Solo 401(k) loan under the CARES act?

  1. Someone who is diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,
  2. Whose spouse or dependent is diagnosed with such virus or disease by such a test, or
  3. Someone who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the IRS.

The last provision of the bill is very wide to allow Solo 401(k) owners some flexibility to see if they qualify for an enhanced Solo 401(k) loan.

What about RMDs and distributions?

RMD are temporarily paused for all pre-tax retirement accounts. 

Anyone who qualifies (qualifications below) as being affected by the coronavirus pandemic can take up to a $100,000 distribution from their traditional 401(k). 

What does this mean for me?

  1. If you are below 59 and 1/2, you avoid the 10% tax penalty added to early distributions.
  2. If you plan on taking this money out of your retirement account permanently, you will be still taxed on this money as income, but can choose to pay the tax liability immediately or spread the tax liability over the next three years. 
  3. You can return your retirement funds to the IRA in a contribution over the next three years. This will allow you to avoid the tax liability completely. In short, this is an interest-free "loan" from your IRA as long as you follow the rules. 

Who qualifies?

  1. Someone who is diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,
  2. Whose spouse or dependent is diagnosed with such virus or disease by such a test, or
  3. Someone who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the IRS.

The last provision of the bill is very wide to allow IRA owners some flexibility to see if they qualify for a penalty-free distribution, or distribution and repayment.

What if my retirement money is in a corporate 401(k) instead of Rocket Dollar Solo  401(k)?

“Retirement plans can make amendments and adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans,” according to SHRM. (Society of Human Resource Management) Source

Talk to your HR or look for incoming updates from your 401(k) provider.