David Morey 
The United States Congress successfully passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020. This was looked up to as an economic stimulus package. It impacted the Individual Retirement Account (IRA) or the 401(K) if these were a part of the retirement strategy of a US citizen.
The Cares Act 401k Guide from ERC Today stipulates the following rules that determine the impact of CARES on IRA and 401(K).
Withdrawals with No Penalty
If account holders of IRA or 401(K) qualify as affected by the coronavirus, they can have early withdrawals from IRA or 401(K) without the 10% penalty. Suppose a person qualifies for the economic stimulus package, and this person’s employer allows hardship withdrawals. In that case, this person can access the funds in 401(K) without worrying about the penalty. The Internal Revenue Service (IRS) does not label this coronavirus distribution as a ‘rollover.’ Consequently, the employer does not pose a hurdle by withholding 20% of the gross amount.
Split in the Taxes for Withdrawal
In 2020, if a person made a coronavirus withdrawal from the retirement account, the person got the following advantages.
If a person takes a withdrawal, this person has to pay income tax for the withdrawal during that financial year. An example is that Mr. A withdraws 50K USD for 2020. Mr. A has to pay income tax during the year 2020. However, the CARES Act empowers the person to pay income tax over three years from 2020 to 2022.
Further, if Mr. A repays some or the entire withdrawal amount, the IRS categorizes this amount as a ‘rollover’ and does not levy income tax. So, if Mr. A repays 15K USD, then Mr. A has to pay income tax for 35K USD.
The only condition is this rule is that you must ensure that your plan permits you to have hardship withdrawals by accessing your 401(K) early.
Suspend the Payments While Repaying a Loan
Suppose a person has taken a loan on the 401(K) account. In that case, this person is provided five years to repay this loan before the remaining amount of money becomes taxable and is probably eligible for a premature withdrawal. The CARES Act has not altered this five-year timeline to repay the loan.
However, the Act offers the qualified person a suspension of the repayment for one year. This person can suspend the loan payments from March 27, 2020, to December 31, 2020. Nevertheless, interest continues to accrue during this time. Further, your employer needs to augment your payments after December 2020 to repay the entire loan within five years.
Increase in the Borrowing Limit
Before the CARES Act, a person with 401(K) could borrow an amount that is less than 50% of the person’s balance and 50K USD. After this Act, the person can borrow an amount that is less than 100% of the person’s balance and 100K USD. The only condition is that the employer must certify that the person is eligible for the loan as per the CARES Act.
