Loans and Withdrawals From Retirement Plans
As a participant in the Brandeis University Defined Contribution Retirement Plan for faculty, professional and administrative staff, or Brandeis University Defined Contribution Retirement Plan for nonexempt employees, you have options available to you under the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The act was signed into law by President Trump on March 27 and provides options for you to consider as you navigate financial decisions in the coming months. Brandeis University has chosen to adopt the following CARES Act provisions for our retirement plans:
- Penalties and withholding are waived for qualified distributions from retirement plan accounts.
- Retirement plan loan limits have been increased.
- Optional suspension of required minimum distributions for 2020.
In addition to these CARES Act relief measures, the deadline for 2019 Individual Retirement Account contributions has been extended from April 15 to July 15, 2020.
As always, we recommend reaching out to your financial consultant to review your current situation — along with short- and long-term financial goals — before making any decisions. Keep in mind: Any changes as a result of the CARES Act should only be made if necessary and related to a COVID-19 hardship. Taking significant amounts of money out of your retirement account now may impact your future retirement savings goals.
Upcoming Deadline for CARES Act Loans
The availability of CARES Act Loans will expire on September 22, 2020. The CARES Act permitted plan sponsors to increase the maximum loan limit for qualified participants to the lesser of 100% of the participant’s vested account balance or $100,000 (reduced by the highest outstanding loan balance in the past 12 months) from all plans of the employer and any related employer from March 27 – September 22, 2020.
All CARES Act Loan requests must be initiated and in good order by 4:00 p.m. ET (unless the market closes sooner) on September 22, 2020.
What Does This Mean for You?
We know that keeping you and your family healthy and safe amid the challenges surrounding COVID-19 needs to be your first priority. That’s why we’re working with our retirement plan partners at Fidelity and TIAA to break down the provisions in the act to make them easier to understand, so you can determine if they may be right for you.
Retirement Plan Withdrawals and Loans
Who Is Eligible?
You are considered eligible to take distributions/loans from your retirement plan if any of the below conditions are met:
- You have been diagnosed with COVID-19 by a test approved from the Centers for Disease Control and Prevention.
- You have a spouse or dependent who has been diagnosed with COVID-19.
- You suffer financial consequences as a result of quarantine, employment furlough, layoffs or reduced work hours, or you cannot work due to lack of child care as a result of the coronavirus.
- You experience a financial loss to an individually owned or operated business that is caused by a closing or reduction of hours due to the coronavirus.
- Other factors as determined by the secretary of the Treasury or his delegate.
How Can the Act Help if You Are Eligible?
Penalties and withholding are waived for qualified distributions from retirement plan accounts
- Provided the above eligibility criteria are met, the CARES Act waives the 10% early withdrawal penalty and eliminates the 20% withholding for coronavirus-related distributions of up to $100,000 across qualified retirement plans and IRAs. While the 20% withholding will not automatically be taken from distributions, you will have the option to add withholding if you want.
- Distributions will be subject to taxation as income; you will have the option to pay taxes due over a three-year period. We suggest you consult with your personal tax adviser on these matters.
- The act also allows you to reinvest withdrawn funds within three years, regardless of that year’s contribution limit, making it easier to replace the amount of your distribution in your retirement account.
- It should be noted that taking an early withdrawal may mean less money for your future. That may be especially true in times of volatile market performance such as has recently been occurring. If you withdraw funds, it may severely impact your ability to participate in market recovery and, in turn, your entire retirement plan may be impacted.
Retirement plan loan limits are increased
- Maximum retirement plan loan limits have been increased from $50,000, or 50% of vested account balances, to $100,000, or 100% of vested account balances, for loans made within 180 days of enactment of the CARES Act on March 27.
- Brandeis University loan policy is still in force. This means that the type of loan, the number of loans allowed and limits offered within our plan have not changed. We currently allow participants a maximum of two outstanding plan loans. Loans are available from Voluntary/Supplemental and Rollover Contribution sources. The plan does not allow participants to borrow money attributable to their 5% or 3% required contributions or the university match.
- If you choose to take a loan, you will be asked to self-certify that you meet the requirements for a coronavirus-related loan. The loan approval process will remain the same as it does for noncoronavirus-related loans.
- If you have existing retirement plan loan payments, you may be able to defer payments for one year and extend the term of your loan by one year.
Suspension of required minimum distributions
To help provide relief for those required to take a required minimum distribution, the CARES Act allows you to cancel your 2020 RMD payments and restart them in 2021.
- If you already have an RMD payment scheduled for this year: You have the flexibility to cancel it; Fidelity and TIAA will restart it automatically in 2021.
- If you have already started receiving your RMD this year: You have the option to repay it as a rollover. If checks have already been sent, you have 60 days to roll over those funds into a plan that accepts rollovers, or into an IRA. In past disaster scenarios, the IRS has extended that rollover period. TIAA will monitor regulatory activity and notify clients if an extension is granted in this context.
- If you have not set up your RMD this year: Based on the CARES Act, TIAA cannot set up new RMD payments. If you still need the money, you can take a withdrawal. The quickest way to set that up is through the TIAA website; be sure to set up an electronic funds transfer.
Other Changes to Consider
- Tax filing and payment changes: The Treasury has extended federal tax filing and IRA contribution deadlines. The federal deadline for filing a 2019 tax return — and any corresponding 2019 IRA contributions outside of your retirement plan — has been extended to July 15, 2020.
- Student loans and stimulus payments: Borrowers with certain federal student loans have the opportunity to defer payments until later in the year, and qualified taxpayers meeting specific single/joint filing criteria may be eligible to receive stimulus payments. Please consult your personal tax adviser or your loan provider for additional information.
How to Get Help
- Schedule a meeting: Visit getguidance.fidelity.com or call 800-642-7131.
- Discuss loans and distributions: Visit NetBenefits or call 800-343-0860.
- Additional resources: Contact the COVID-19 Resources Center.