COVID-19 Related Changes to Retirement Plans

Today is Tax Day 2020. File or extend your 2019 federal tax return before midnight!

COVID-19 Related Changes to Retirement Plans

The CARES Act provides relief for taxpayers affected by COVID-19 who take distributions or loans from retirement plans.

Qualified individuals affected by COVID-19 may be able to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between Jan. 1 and Dec. 30, 2020.

These coronavirus-related distributions aren’t subject to the 10% additional tax that generally applies to distributions made before reaching age 59½, but they are still subject to the regular tax. Taxpayers can include coronavirus-related distributions as income on tax returns over a three-year period. They must repay the distribution to a plan or IRA within three years.

Some plans may have relaxed rules on plan loan amounts and repayment terms. The limit on loans made between March 27 and Sept. 22, 2020, is raised to $100,000. Plans may suspend loan repayments due between March 27 and Dec. 31, 2020.

Qualifications for Relief

The law defines a qualifying person as someone who:

Has tested positive and been diagnosed with COVID-19
Has a dependent or spouse who has tested positive and been diagnosed with COVID-19
Experiences financial hardship due to them, their spouse, or a member of their household:
- Being quarantined, furloughed or laid off, or having reduced work hours
- Being unable to work due to lack of childcare
- Closing or reducing hours of a business that they own or operate
- Having pay or self-employment income reduced
- Having a job offer rescinded or start date for a job delayed

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. Administrators can rely on an individual’s certification that they’re a qualified person.

Required Minimum Distributions

People who already took a required minimum distribution from certain retirement accounts in 2020 can now roll those funds back into a retirement account.

The 60-day rollover period has been extended to Aug. 31, 2020.

Under the relief, taxpayers with required minimum distributions from certain retirement plans can skip them this year. Distributions that can be skipped were due in 2020 from a defined-contribution retirement plan. These include a 401(k) or 403(b) plan, as well as an IRA. Among the people who can skip them are those who would have had to take the first distribution by April 1, 2020.

This waiver does not apply to defined-benefit plans.

A Final Note

Taxpayers should contact their plan administrator or financial institution for details regarding how the CARES Act rules for coronavirus-related distributions and loans from plans apply to their specific plans.

Don’t forget to file or extend by midnight tonight!

Stay safe. Stay well. Stay home.