More Individuals Qualified for CARES Act Coronavirus-Related Retirement Plan Distributions, Loans Under New IRS Guidance
Also Increases Loan Amounts, Includes Temporary Suspension of Repayments
June 22, 2020
The IRS has published guidance regarding CARES Act provisions on Coronavirus-related distributions and loans from retirement plans. The CARES Act provided relief from the 10 percent penalty and 20 percent mandatory withholding on “Coronavirus-related distributions” of up to $100,000 from retirement plans and IRAs. It also provided for an increase in retirement plan loans and a temporary suspension of loan repayments.
A related IAA Today story – CARES Act Provisions Related to Retirement (April 6) – includes more information on these CARES Act provisions and individuals qualified to rely on them (qualified individuals).
Expansion of Definition of Qualified Individual
The IRS guidance expands the definition of a qualified individual to include an individual who experiences adverse financial consequences as a result of any of the following due to COVID-19:
- The individual having a reduction in pay (or self-employment income) or having a job offer rescinded or start date for a job delayed;
- The individual’s spouse or a member of the individual’s household being quarantined, being furloughed or laid off, or having work hours reduced, being unable to work due to a lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed; or
- Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household.
A member of the individual’s household is someone who shares the individual’s primary residence.
Coronavirus-Related Distributions
The IRS provides guidance on the term “Coronavirus-related distribution,” including that the definition “does not limit these distributions to amounts withdrawn solely to meet a need arising from COVID-19.” For example, “the amount of the distribution is not required to correspond to the extent of the adverse financial consequences experienced by the qualified individual.”
Guidance for Employer Plans
The IRS discusses the treatment of Coronavirus-related distributions and the fact that certain requirements for rollovers, including 20 percent mandatory withholding, are not applicable to Coronavirus-related distributions. If a plan does not treat a distribution as a Coronavirus-related distribution, a qualified individual may treat it as such as long as it meets the relevant requirements. This section of the guidance also provides an example of an acceptable certification that a plan may rely on from an individual to show that the individual is a qualified individual.
Another section of the guidance for plans addresses making, or accepting recontributions of, Coronavirus-related distributions, including tax reporting. The guidance also provides that “if a plan does not accept any rollover contributions, the plan is not required to change its terms or procedures to accept recontributions of Coronavirus-related distributions.”
A later section of the guidance addresses the CARES Act provisions that relate to plan loans. As described in the related press release, it includes “a safe harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020, but notes that there may be other reasonable ways to administer these rules.”
Guidance for Individuals
The IRS also provided guidance to individuals receiving Coronavirus-related distributions, including information on what forms must be filed, how income may be included over a one-year period or ratably over a three-year period, and the treatment of recontributions of Coronavirus-related distributions.
See Guidance for Coronavirus-Related Distributions and Loans from Retirement Plans Under the CARES Act, Notice 2020-50 (June 19, 2020).
TAGS: CARES Act, Coronavirus, COVID-19, IRAs, IRS, Retirement Plans