The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020. This post is intended to address various aspects of the CARES Act regarding retirement funds. As always, we recommend that you seek advice from a tax professional, financial advisor, or a licensed family law attorney if you have specific questions.
A “coronavirus-related distribution” is defined by the Act as a distribution made to an individual who is diagnosed with SARS-CoV-2 or COVID-19, a distribution made to an individual whose spouse or dependent is diagnosed with SARS Cov-2 or COVID-19, or, an individual who experiences “adverse financial consequences” as a result of the coronavirus. This includes the financial consequences of being quarantined, being laid off, or being unable to work because of the lack of childcare.
Millions of people have suffered negative financial consequences due to the coronavirus. If you are having difficulty making ends meet, your retirement funds may now be more readily accessible due to the CARES Act.
For instance, the Act allows certain persons to make a “coronavirus-related distribution” from his or her retirement plan. Certain distributions will be exempt from the ten percent (10%) penalty typically applied to an early withdrawal from a retirement account. Additionally, the distribution can be taxed over three years, rather than taxing the distribution as income in a single tax year.
Qualifying individuals may also take a loan from a retirement plan in the amount of up to $100,000. The limit was previously $50,000. There are also delayed repayment options available.
While greater access to retirement funds can be a valuable financial resource for many people, be reminded that the automatic temporary injunction which applies to divorcing parties in Colorado has not been amended or waived. In other words, it may still be a violation of the injunction to encumber your retirement plan with a loan or to take a distribution from your retirement plan. Accordingly, if you wish to take such action during the pendency of a divorce, you will still need a written agreement from your spouse or Court permission to take such action.
Furthermore, distributions from a retirement account or retirement benefits actually received still constitute “income” in Colorado for the purpose of determining maintenance and child support. Colorado’s child support and maintenance guidelines have not been amended due to the coronavirus. As such, if you are considering taking a distribution, you should carefully consider how this distribution could impact the current or future calculation of support owed.
If you have questions related to the CARES Act, reach out to one of our qualified attorneys or check back soon for future blog posts on the Act.