CARES Act Provisions Provide Financial Options for TIAA Retirement Plan Members
For Penn State employees who participate in the Alternate Retirement Plan (ARP), Tax Deferred Annuity Plan (TDA), and/or the 457 Deferred Compensation Plan, offered through TIAA, the Coronavirus Aid, Relief and Economic Security (CARES) Act provides options for you to consider as you navigate financial decisions in the coming months. Before making any decisions, it is recommended that you reach out to your TIAA financial consultant to understand the effects of withdrawing retirement funds and evaluate your situation and financial goals.
Penn State has chosen to adopt the following CARES Act provisions for TIAA’s retirement plan(s):
- Penalties and withholding are waived for certain COVID-19-related distributions from retirement plan accounts
- Ability to suspend loan repayments for up to one (1) year for certain COVID-19-related reasons
- Suspension of required minimum distributions (RMDs) for 2020 for all plan participants who are scheduled to receive such distributions (not just those affected by COVID-19)
Retirement plan withdrawals and loans
You are considered eligible to take distributions/suspend loan repayments from your retirement plan if any of the below conditions are met:
- You have been diagnosed with COVID-19 by a test approved from the Centers for Disease Control and Prevention
- You have a spouse or dependent who has been diagnosed with COVID-19
- You suffer financial consequences as a result of quarantine, employment furlough, layoffs, reduced work hours or cannot work due to lack of childcare as a result of COVID-19
- You experience a financial loss to an individually owned or operated business that is caused by a closing or reduction of hours due to COVID-19
- Other factors as determined by the Secretary of the Treasury or his delegate (as of now, there are no additional factors that have been determined)
Provided the above eligibility criteria are met, the CARES Act waives the 10% early withdrawal penalty for distributions taken prior to the age of 59 ½ (note that this penalty does NOT apply to the 457(b) plan) and eliminates the 20% withholding for COVID-19-related distributions of up to $100,000 total across all of your retirement plans with all employers, and IRAs.
Note: While the 20% withholding will not be automatically taken from distributions, you will have the option to add withholding if you want.
Distributions will still be subject to taxation as ordinary income, and you will have the option to pay taxes due over a three-year period. We suggest you consult with your personal tax advisor regarding such a distribution and its tax consequences to you as an individual.
You will also be allowed to reinvest withdrawn funds within three years regardless of that year’s contribution limit, making it easier to replace the amount of your distribution in your retirement account. It is suggested that you consult with your personal tax advisor regarding prior taxes you may have paid.
Suspension of Loan Repayments
Provided the above eligibility criteria are met, individuals with loans in effect on or after the CARES Act enactment date of Friday, March 27, 2020, can delay repayment or any loan payments due between Friday, March 27, 2020 and Thursday, December 31, 2020 for one year, with the term of the loan being extended by one year as well. If you elect to delay such payments, you will resume loan repayments with your scheduled payment due in January of 2021.
Note: If you delay payment, interest will continue to accrue and be added to your outstanding loan balance as of January of 2021.
Suspension of required minimum distributions (RMDs)
To help provide relief for those required to take RMDs, the CARES Act allows you to cancel your 2020 RMD payments and restart them in 2021.
- If you already have an RMD payment scheduled for this year:
You have the flexibility to cancel it, and TIAA will restart it automatically in 2021.
Note: Established RMD payments that are scheduled will continue unless a participant takes action to cancel these payments by contacting TIAA as provided below.
- If you have already started receiving your RMD this year:
You have the option to repay it as a rollover. If you’ve received a distribution on or after February 1, 2020, you have until Wednesday, July 15 to repay those funds to the Penn State Program or roll over those funds into a plan/IRA that accepts such rollovers. There has yet to be any guidance issued as to RMDs that took place in January of 2020; however, in past disaster scenarios, the IRS has extended that rollover period. TIAA will monitor regulatory activity and notify clients if an extension is granted in this context. Also, if you meet the conditions for a COVID-19 distribution as described above, you may classify this distribution as a COVID-19 distribution, subject to the same favorable tax treatment described above, which means you have three years to repay those funds to the Penn State Program, or roll over those funds into a plan/IRA that accepts such rollovers.
- If you have not set up your RMD this year:
Based on the CARES Act, TIAA cannot set up new RMD payments. If you still need the money, you can take a withdrawal. The quickest way to set that up is through the TIAA website; be sure to set up an EFT.
If you meet the eligibility criteria detailed above, would like to speak to a financial consultant, or would like to request loans or distributions, you can do so by logging in to your online account at TIAA.org or calling TIAA at 855-400-4294. You can also visit TIAA.org/psu for more information on the provisions of the CARES Act and other changes to consider. We recommend reviewing all your options prior to making a decision.