Coronavirus-Related Relief for Retirement Plans and IRAs Questions and Answers
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020) and the Coronavirus Response and Consolidated Appropriations Act (2021) provided fast and direct economic assistance for American workers, families, small businesses, and industries. Keep reading for more information on how it can impact your retirement plans and IRAs, as explained by the IRS.
What is the CARES Act?
According to the US Department of the Treasury, the CARES Act implemented a variety of programs to address issues related to the onset of the COVID-19 pandemic. The Consolidated Appropriations Act continued many of these programs by adding new phases, new allocations, and new guidance to address issues related to the continuation of the COVID-19 pandemic. The CARES Act was passed by Congress on March 25, 2020, and signed into law on March 27, 2020. The Consolidated Appropriations Act (2021) was passed by Congress on December 21, 2020, and signed into law on December 27, 2020.
How do individuals benefit from the CARES Act?
During the Coronavirus pandemic, many individuals were hit hard financially. The government took action with the CARES Act. With this act, it is easier for you to access your savings in Individual Retirement Arrangements (IRAs) and workplace retirement plans. This relief provides favorable tax treatment for certain withdrawals from retirement plans and IRAs, including expanded loan options.
Some benefits of the CARES Act for individuals include:
- Waiver of required minimum distributions for 2020, rollovers extended
- Qualified individuals eligible for coronavirus-related retirement plan withdrawals and loan relief
- Types of retirement plans and IRAs that can make coronavirus-related distributions
- Coronavirus-related distributions from workplace retirement plans and IRAs
- The 10% additional tax on early distributions does not apply to coronavirus-related distributions
- Plan loan limits may be increased to $100,000 with an extra year to repay for qualified individuals
- Expanded loans and distributions under the CARES Act are optional in an employer-sponsored retirement plan
What types of retirement plans and IRAs can make Coronavirus-related distributions?
Eligible retirement plans that can make coronavirus-related distributions include all plans that are able to receive plan rollovers. Eligible retirement plans include:
- Traditional IRAs
- Roth IRAs
- Simplified Employee Pension (SEP) IRAs
- Savings Incentive Match Plan for Employees (SIMPLE) IRAs
- Salary Reduction Simplified Employee Pension (SARSEP) IRAs
- Profit-sharing plans
- 401(k) plans
- Pension plans
- 403(b) plans
- Governmental 457(b) plans
- 403(a) plans
What makes you eligible for coronavirus-related retirement plan withdrawals and loan relief?
To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:
- The individual (or the individual’s spouse or dependent) is diagnosed with the virus SARS-CoV-2 or with 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 Cosmetics Act);
- The individual experiences adverse financial consequences as a result of:
- The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to 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, due to COVID-19;
- 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, having work hours reduced, being unable to work due to 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, due to COVID-19; or
- Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.
- Employers can choose whether to implement these coronavirus-related distribution and loan rules; however, qualified individuals can claim the tax benefits of the coronavirus-related distribution rules even if plan provisions aren’t changed. Plan administrators can rely on an individual’s certification that the individual is a qualified individual (unless the plan administrator has actual knowledge to the contrary), but that individual must actually be a qualified individual to obtain favorable tax treatment with respect to the distribution. Notice 2020-50 PDF provides a sample certification for plan administrators.
About Priority Gold
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