Skip to main content
Top Button
Summary of the Special Rules for Use of Retirement Funds Summary of the Special Rules for Use of Retirement Funds

Summary of the Special Rules for Use of Retirement Funds

Below is a summary of one of the provisions of Title II - Rebates and Other Individual Provisions and Business Provisions from the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
 
Summary
  • Allows for tax-favored withdrawals from retirement plans and retirement plan loan relief for individuals affected by COVID-19.
Detailed Analysis
Tax Benefit
A qualified individual may receive early distributions from a 401(a) plan, 403(b) plan, governmental 457(b) plan or IRA without being subject to the 10% penalty under IRC § 72(t) if the distribution is a coronavirus-related distribution.

A coronavirus-related distribution of up to $100,000 can be made from the plan from the date of enactment through December 31, 2020, regardless of whether the qualified individual is otherwise eligible for a distribution. A plan sponsor is responsible for enforcing the $100,000 limit only with respect to the retirement plan it and any employer in its controlled group sponsors.

Any amount of a coronavirus-related distribution that is required to be included in gross income may be included ratably over a three-year period, unless the taxpayer elects otherwise. An individual who receives a coronavirus-related distribution may repay the amount of the distribution to an eligible retirement plan within the three years after taking the distribution.

Additionally, for the 180-day period after enactment of the Act, a qualified individual may receive a loan under IRC § 72(p) from a 401(a) plan, 403(b) plan or governmental 457(b) plan up to $100,000 (an increase from $50,000) or the greater of $10,000 or 100% (an increase from 50%) of the participant's account. For an individual with an outstanding loan under IRC § 72(p), the due date for any repayment of that loan that occurs after the enactment of the Act and before December 31, 2020, is delayed for one year, and the delay is disregarded for purposes of the five-year loan limit and loan amortization rules.

Eligibility
A "qualified individual" is an individual:
 
  1. who is diagnosed with COVID-19 by a test approved by the Center for Disease Control;
  2. whose spouse is diagnosed with COVID-19 by a test approved by the Center for Disease Control; or
  3. who experiences adverse financial consequences due to COVID-19 as a result of being quarantined; being furloughed, laid off, or having reduced work hours; being unable to work due to lack of child care closing; or reducing hours of a business owned or operated by the individual; or other factors determined by the Secretary of the Treasury.
For purposes of coronavirus-related distributions, the plan sponsor can rely on the employee's self-certification that he or she is a qualified individual.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
 
View Full Site View Mobile Optimized