The 2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed in to law by President Trump on March 27, 2020.
Aside from the well-known direct stimulus checks to individuals and families, and other provisions, CARES also provides temporary support related to retirement assets.
Under CARES, a qualified individual may take up to a $100,000 “coronavirus-related distribution” without the 10% penalty IF the individual pays back the funds to the retirement plan within three years after receiving the distribution. The deadline for withdrawing the funds is December 31, 2020.
The relief provided by the Act is available to a person:
- (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,
- whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or
- 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 Secretary of the Treasury (or the Secretary’s delegate).
As of April 23, 2020, TSP has not issued any guidance as to whether or not it will adopt the CARES approach and allow a federal employee of any age affected by COVID-19 to withdraw any amount of his or her account without the 10% early withdrawal penalty. The TSP website states it is “reviewing [the Act’s] [retirement account] provisions to determine how [TSP is] going to implement them, and will share that information when decisions have been made.” We will keep you up to date if, and when, any decisions are made by the TSP.
Update: The TSP ultimately did approve the suspension of RMDs for TSP participants.
RMD Suspended for 2020
However, there is some good news for some federal employees. The TSP has adopted the portion of the Act as it pertains to temporarily waiving the requirements for Required Minimum Distributions.
Prior to CARES, individuals over the age of 70 ½ (if you were born prior to July 1, 1949) or 72 (if you were born after July 1, 1949), and non-spousal heirs regardless of age, were required to take a minimum distribution from their tax-deferred retirement accounts each year. CARES temporarily suspends RMD’s, and TSP has followed suit.
The general purpose behind TSP’s action is to assist participants with maintaining their account balances to combat the steep decline in the stock market, and will have the following effects:
- You do not need to make any withdrawals from your TSP account in 2020 to satisfy an RMD, regardless of your age or employment status.
- TSP will not send any automatic RMD payments for 2020.
- If you make a withdrawal, TSP will withhold for federal taxes at the rate appropriate for the type of withdrawal you make, without regard to RMD rules that would otherwise apply. You can transfer or roll over any otherwise eligible withdrawals you make to an IRA or eligible employer plan (be sure to check with your tax professional before you withdraw or roll over funds).
Keep in mind that, if you have elected to take RMD installment payments in 2020, you must log in to your TSP account to stop the payments to take advantage of the waiver.
If you have already taken a withdrawal in 2020, you may be able to roll that back into your TSP using the TSP-60 form depending on when you took the distribution. Again, check the TSP website for the requirements.