The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was enacted as of March 27, 2020, provides special rules for the use of retirement funds in order to provide some economic assistance and relief for individuals. The provisions enacted, as described below, are effective through December 31, 2020, and relate to 401(k), 403(b), 457 plans and IRAs, as applicable.


Typically, hardship distributions from a retirement plan are allowed when there is an immediate and heavy financial need, and the distribution is limited to the lesser of the amount necessary to satisfy that financial need or the participant’s vested balance. In addition, a hardship distribution is normally taxable to the participant in the year taken, includes a 10% early withdrawal penalty for participants under age 59 ½, and cannot be repaid. However, the CARES Act allows the following for Coronavirus-related distributions (CRD):

  • The aggregate amount of distributions which may be treated as CRD may not exceed $100,000 per individual.
  • Eliminates the 10% early withdrawal penalty.
  • Any individual who receives a CRD may repay the CRD over 3 years from the date of the distribution to an eligible retirement plan, treated as non-taxable rollover contributions, not subject to the annual contribution limitation as determined by the IRS;
  • Any amount required to be included in gross taxable income for 2020 will be included ratably over the 3-taxable-year period beginning with 2020, unless the participant elects otherwise.

Distributions taken from an eligible retirement plan from January 1, 2020 through December 31, 2020, may qualify as a CRD if the participant meets the following criteria:

  • Being diagnosed with the virus SARS CoV-2 or with Coronavirus disease 2019 (COVID-19); or
  • The spouse or dependent of the participant is diagnosed with COVID-19; or
  • Experiences adverse financial consequences as a result of being quarantined, furloughed or laid off or having work hours reduced, 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 COVID-19.
  • Other factors as determined by the Secretary of the Treasury.

Previously the funding limitations for loans to participants were limited to the lesser of 50% of the participant’s vested balance or $50,000. The CARES Act has increased the allowable participant loan funding to the lesser of 100% of vested balance or $100,000 for loans taken during the 180-day period beginning March 27, 2020.

Additionally, any repayment amounts due during the period beginning March 27, 2020 through December 31, 2020, can be delayed up to one year from the original due date. However, interest related to any deferred loan repayments will continue to accrue.


The special rules for use of retirement funds as described above are may be applied immediately, even for plans that did not previously allow for hardship distributions or loans to participants. According to the CARES Act, the Plan sponsor is required to adopt the amendments to allow for hardship distributions and plan loans no later December 31, 2022 for calendar year end plans (or the end of the plan year that starts in 2022 of non-calendar year end plans).


Generally, a required minimum distribution (RMD) is the minimum amount of funds that must be withdrawn from an individual’s qualified retirement account upon reaching 72 years of age. The CARES Act temporarily suspends the requirement for minimum distributions for calendar year 2020. Unfortunately for individuals that have already taken an RMD for 2020, the CARES Act does not allow for repayment of the RMD back into the Retirement Plan.

For more information, please contact an HHM professional.