CARES Act and 72t Plans
The case of mistaken identity (or poor naming choices)
There has been some confusion (and a little hopeful optimism) about the effects of the 2020 CARES Act on 72t plans. Unfortunately the CARES Act does not make any changes to the rules for 72t plans or their Substantially Equal Periodic Payments. In fact, SECTION 2202(a)(1) of the CARES Act specifically EXCLUDES section 72(t) from applying to any of its coronavirus-related provisions. So, if you’ve already started on a 72t plan, YOU MUST CONTINUE TAKING PAYMENTS.
The CARES Act (H.R.748) is a very wide ranging bill passed by Congress and the President on March 27, 2020. It includes an expansion to unemployment benefits, direct (cash) payments to individuals, loans to businesses, financial support to states and localities, and more. It also allowed those over 70 who are required to withdraw RMDs from their retirement accounts to skip them for 2020. The CARES Act also waives required RMDs from inherited retirement accounts for 2020. You can read more about the RMD waiver here Notice 2020-51 (PDF)
The CARES Act RMD waiver does not change any provision of the IRS Section 72t exception for Substantially Equal Periodic Payments.
The confusion and hopeful optimism stems from the name of one method used to calculate the 72t payments. The official method is called the required minimum distribution method (all lower case), and is often called the RMD method for short by users of this site (see this page on the 72tNET website for the official description of the 3 calculation methods). The similarity in naming is an unfortunate oversight by the IRS, and is more aptly named The Minimum Distribution method since it does exactly that – it calculates the minimum 72t payment amount of all of the 3 choices.
So you need to continue your 72t payments for the remainder of the later of 5 years or until age 59 1/2. If your retirement account balance is getting too low for your comfort, you can take advantage of the rule allowing a one-time change to your calculation method to the Minimum Distribution method. Changing to the Minimum Distribution method will allow you to recalculate your payments and, importantly, lower them. Please refer to the Tools & Resources menu on the 72tNET website for details, and check the Q&A for previous discussions. If you need advice, post a question to our forum. Good luck!