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How the CARES Act Affects Retirement Plan Participants

This CARES Act resource page is intended to be a general overview of the provisions and it is expected that the IRS and/or DOL will issue additional guidance.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act) was signed into law. This expansive law included retirement plan provisions that are intended to give participants affected by the current pandemic access to their retirement assets while minimizing the tax consequences and maximizing the ability to return the assets to the plan if it is possible. 

The IRS determines qualified individuals by those:

  • who have been diagnosed with the coronavirus by a test approved by the CDC;
  • whose spouse or dependent (as defined in Code Section 152) has been diagnosed with coronavirus by a CDC-approved test; or
  • who has experienced adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household:
    • being quarantined, furloughed or laid off, or having work hours reduced due to coronavirus;
    • being unable to work due to lack of childcare due to coronavirus;
    • having to close or reduce hours of a business they own or operate due to the coronavirus; or
    • having their pay reduced, job offer rescinded or start date delayed due to the coronavirus.

The Plan Administrator is entitled to rely on a participant’s certification that the participant is a Qualified Individual.

Coronavirus-Related Distribution (CRD) Provision 

Participants who self-certify that they meet the criteria for the Coronavirus-Related Distribution (CRD) provision may request up to $100,000 of their vested account balance from all plans maintained by the Employer.

The tax implications are as follows: 

  • The 10% early withdrawal penalty that normally applies to distributions taken prior to age 59 ½ is waived. 
  • While the distribution will be treated as an eligible rollover distribution (ERD) for many plan purposes, the 20% mandatory withholding will not apply.   
  • The pre-tax portion of the distribution is subject to normal taxation; however, the participant may choose to spread the taxable income evenly over 3 taxable years starting with the 2020 tax filing.   


A 40-year old participant self-certifies that he meets the criteria for the CRD provision in his retirement plan. His vested balance is $50,000.  He takes a CRD of $30,000 in 2020.   

Since this is a Coronavirus-related distribution, the participant can claim $10,000 as income in 2020, $10,000 as income in 2021, and $10,000 as income in 2022.  Also, the participant does not have to pay the additional 10% tax. 

  • A participant who takes a CRD has the option to repay all or part of the distribution (without adjustment for earnings) within three years to any plan that can accept rollovers. The window for repayment is three years from the date the participant receives the CRD.    

Coronavirus-Related Loan Provision 

The CARES Act has two main loan provisions for participants who self-certify that they meet the criteria for the Coronavirus-Related Loan Provision: 

  • An increase in the amounts used to determine the maximum loan allowed. For loans made during a 180-day time frame starting on March 27, 2020, when calculating the maximum loan amount that a participant may take the $50,000 or 50% of the vested account balance portion of the calculation is increased to $100,000 and 100% of the vested account balance. These limits are reduced by existing loans. 


A participant self-certifies that he meets the criteria for the Coronavirus-related loan provision.  He has no outstanding loans from his retirement plan. His vested balance is $125,000.   

Under the Coronavirus-related loan rules, the participants may borrow the lesser of his full account or $100,000. In this case, the participant may take a Coronavirus-related loan for $100,000. 

  • Postpone payments of new and existing loans.  Participants with loan payments due on new or existing loans after March 27, 2020 and before December 31, 2020, whether on a new Coronavirus-related loan or an existing loan, may have their loan payments postponed for a year. The five-year maximum loan repayment period is also extended for one year.  Interest accrues while the payments are postponed. 

2020 Required Minimum Distribution (RMD) 

RMDs that are required to be distributed to participants or beneficiaries in the 2020 calendar year, including first-year RMDs that have a required beginning date in 2020, may be waived.  This waiver applies to all plan participants, not just those who are affected by the Coronavirus. 

For a participant who attained age 70 ½ prior to 2019, this means that the participant does not need to take an RMD for 2020. RMDs must restart in 2021, with that year’s payment due by December 31, 2021. 


To learn more, go to https://www.envoyfinancial.com/cares-act-video.

Click here to read helpful FAQs from NAPA and the ARA.