On June 19, 2020, the IRS released Notice 2020-50 “Guidance for Coronavirus-Related Distributions and Loans from Retirement Plans Under the CARES Act,” which expands the categories of individuals who are eligible for these distributions and loans.
The CARES Act, which originally passed in March of this year, allowed qualified individuals to take distributions up to $100,000 from eligible retirement accounts during the 2020 calendar year. The qualifying distribution was not subject to the 10% additional tax for an early distribution (made before reaching age 59 ½). The Act also allowed for these qualifying distributions to be included in income in equal installments over three years. Starting the day after the distribution, you can repay the amount to the retirement account within three years to avoid any tax consequences.
In addition, the CARES Act provides that plans may implement certain rules for qualified individuals relating to plan loan amounts and repayment terms. Plans may suspend loan repayments that are due from March 27, 2020, through Dec. 31, 2020, and the dollar limit on loans made between March 27, 2020, and Sept. 22, 2020, is raised from $50,000 to $100,000.
Notice 2020-50 expands the definition of who is a qualified individual to include:
- Anyone who is diagnosed, or whose spouse or dependent is diagnosed, with COVID-19,
- Anyone who experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (someone who lives in the individual’s primary residence):
- Being quarantined, 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- Having a job offer rescinded or start date for a job delayed due to COVID-19.
Notice 2020-50 also provides some clarification for employers. Employers can choose whether to implement these coronavirus-related distribution and loan rules, and the notice indicates that qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions are not changed.
The notice clarifies that administrators can rely on an individual’s certification that the individual is qualified, but also notes that an individual must actually be a qualified individual to obtain favorable tax treatment. Notice 2020-50 includes a sample certification that would be appropriate for the qualified individual to sign for administrative purposes. Employers are also provided 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.
Meanwhile, if you have questions on taking a coronavirus-related distribution from your retirement accounts, contact the Experts at Henssler Financial:
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- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
- Join the Conversation in Our Coronavirus Facebook Group
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