Many small business owners and entrepreneurs have been heads down applying for the SBA’s PPA (Paycheck Protection Program) and EIDL Loans. While you wait to see if and when your bank and the SBA will approve your loan, you may be asking yourself “What should I do next?”
The CARES Act included a number of provisions that help business owners and their employees who participate in a company sponsored retirement plan. Whether you are a business owner struggling during these times, or one currently thriving, your priorities, goals, and needs have certainly shifted. Which makes this the perfect time to evaluate your company’s retirement plan.
The CARES Act, signed into law on Friday March 27, 2020, provides aid to companies that sponsor a retirement plan, employees who participate in said plans, and company owners and entrepreneurs. The CARES Act enhancements for retirement plans were enacted to assist retirement plan participants (including owners and entrepreneurs) by offering a special distribution, expanded loan features, and relief from required minimum distributions. These enhancements are important as they are additional benefits that can be made available to participants who are experiencing or will experience financial difficulties and other hardships. The following information is intended to help you decided whether to adopt the CARES Act enhancements for you and your employees.
IRS Form 5500 – The IRS has NOT extended your Filing Deadline:
In a 4/9/2020 IRS announcement, the IRS once again extended tax return filing deadlines, but not for IRS Form 5500 (the return that must be filed by most company retirement plans). The IRS has NOT extended the informational tax filing deadline for most company sponsored retirement plans, including SEP/Simple IRA, 401k, 403b, 457, Defined Benefit Plans and more.
The vast majority of 401(k) and other company sponsored retirement plans use December 31 as their plan year end. This means that IRS Form 5500 is due to the IRS no later than July 31, 2020 (for 2019 December Plan Year ends), unless you/your Third Party Administrator file IRS Form 5558 requesting an extension of time to file.
The Notice does, however, provide a filing extension for those 401k and other retirement plans that have a filing deadline that lands between April 1,2020 and July 15, 2020. This includes 401k plans that have already utilized IRS Form 5558 to request an extension of time to file that is in that window.
The most recent IRS filing extension notice can be found here.
CARES Act Loan:
As a supplement (or alternative) to the Paycheck Protection Program loan, business owners that sponsor a 401(k) Plan can also take a participant loan up to 100% of your vested balance, not to exceed $100,000. The CARES Act increased the maximum participant loan from a $50,000 maximum to $100,000. Just as important, you can also suspend loan repayments for up to 12 months. You can read more about this CARES Act enhancement here. (I'm happy to talk through your options as well depending on how your retirement plan is designed, or can be changed)
In addition to the CARES Act participant loan enhancements, business owners and entrepreneurs can also take a CARES Act distribution from their own 401(k) account balance.
CARES Act Distribution:
The CARES Act allows for a special distribution with special criteria and modified tax treatment (referred to as the “Cares Act Distribution”). The distribution may be taken from any eligible retirement plan including qualified plans, IRA’s, 403(b) Plans and governmental 457 plans.
We want to help our clients like you! We know the questions you have as a company owner, entrepreneur and/or leader. We can help by reviewing your retirement plan design, considering your current circumstances and providing recommendations and guidance. Reach out to a team member if you want additional assistance.
Our Leading Retirement Solutions Team wishes everyone health and safety. We have maintained a brick and mortar as well as a strong remote workforce for 10+ years and it was a smooth transition to go fully remote a few weeks ago. All of our team members are healthy and operating in secure environments from home offices. We continue to operate normal business hours (Mon.-Fri.; 5am PT-6pm PT) and our team is readily available to support you, your clients, answer phone calls and respond to emails.
