Retirement loans, withdrawals available for coronavirus needs
Faculty and staff may withdraw or initiate loans from their accounts in certain U-M retirement savings plans under a provision of federal legislation designed to assist investors affected by the COVID-19 pandemic.
Employees in certain U-M retirement savings plans are eligible under the Coronavirus Aid, Relief and Economic Security Act. The transactions must be in response to a qualifying coronavirus-related hardship, including:
- Employee diagnosis of COVID-19.
- Spouse or dependent diagnosis of COVID-19.
- Adverse financial consequences due to quarantine, furlough, layoff or reduction in work hours due to COVID-19.
- Inability to work due to lack of child care related to COVID-19.
- Closing or reducing hours of a business owned or operated by the employee due to COVID-19.
- Other factors determined by the U.S. Secretary of the Treasury.
Employees will self-certify that they meet these requirements when they initiate the process.
The CARES Act applies to the following U-M plans at TIAA and Fidelity Investments:
- 403 (b) Basic Retirement Plan, with the exception of the 401 (a) plan, accumulations in the TIAA Traditional fund, and loans not available in the Basic Plan.
- 403 (b) Supplemental Retirement Account (SRA).
- 457 (b) Deferred Compensation Plan.
Details regarding eligibility and plan specifics are complex as outlined in the CARES Act.
A question-and-answer section has been added to the Human Resources COVID-19 information site to address specific inquiries.
Employees may take advantage of withdrawals up to a combined total of $100,000 from eligible retirement plans, and up to $100,000 in 403(b) SRA and 457(b) loans — twice as much as normally allowed for loans.
How do taxes affect distribution?
Under the CARES Act, some standard tax withholding and penalties have been altered or waived for withdrawals. Although withdrawals are subject to taxation, the act allows the following tax advantages:
- Waiver of the standard 10 percent Internal Revenue Service penalty for distributions taken before age 59½.
- Waiver of standard 20 percent federal tax withholding. Income tax is still due on the withdrawal, but employees may choose to have no withholding at the time of distribution.
- Optional three-year period to pay the taxes on the distribution.
- Optional three-year period to repay the distribution back into the retirement account.
With many resources available to assist employees experiencing coronavirus-related hardships, it’s a good idea to consult an expert. Each person’s situation is different and requires unique planning.
U-M and community resources include:
- University COVID-19-specific programs.
- TIAA ( 855-400-4294, TIAA.org) and Fidelity (800-343-0860, netbenefits.com/uofm) representatives.
- University and community resources.
- Tax advisers.