Expanded Relief for Retirement Plan Distributions
The IRS released Notice 2020-50 which provides guidance and extended relief for retirement plan participants affected by the Coronavirus pandemic. The CARES Act includes provisions regarding retirement plan distributions and loans.
Under the CARES Act, qualified individuals may treat up to $100,000 as coronavirus-related distributions from eligible retirement plans from January 1, 2020 to December 31, 2020. The distribution isn’t subject to the 10% additional tax and can be included in income in equal installments over a three-year period. The qualified individual has three years to repay the distribution to their plan.
Plans may suspend loan repayments that are due between March 27 and December 31, 2020, and the dollar limit on loans made from March 27 to September 22, 2020, increases from $50,000 to $100,000.
IRS Notice 2020-50 expands the definition of who is a qualified individual by taking into account other factors.
A qualified individual is anyone who:
- is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
- experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
- being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
- being unable to work due to lack of childcare due to COVID-19;
- closing or reducing hours of a business that they own or operate due to COVID-19;
- having pay or self-employment income reduced due to COVID-19; or
- having a job offer rescinded or start date for a job delayed due to COVID-19.
Employers can choose whether to implement these coronavirus-related distribution and loan rules. Qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren’t changed. Plans administrators can rely on an individual’s certification that the individual is a qualified individual. Employers also get a safe harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020.
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