On June 19, 2020, the IRS released Notice 2020-50, expanding the relief available to taxpayers affected by COVID-19 who take distributions or loans from retirement plans. Specifically, Notice 2020-50 provides guidance:
Under §2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between January 1 and December 30, 2020. A coronavirus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.
In addition, the CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27 through December 31, 2020, and the dollar limit on loans made between March 27 and September 22, 2020, is raised from $50,000 to $100,000.
The CARES Act provides categories of individuals who qualify for “coronavirus-related distributions,” including those who experience adverse financial consequences as a result of:
While the above list was expansive, several categories of individuals who are suffering from adverse financial conditions as a result of COVID-19 were not included in the statutory list and until now were unable to access the benefits of this CARES Act provision. For example, an individual who had a reduction in pay as a result of COVID-19, without a reduction in hours, did not fall within any of the statutory categories of a qualified individual. As another example, if only an individual’s spouse experienced one of the above adverse financial conditions, the individual could not take a coronavirus-related distribution from his/her own retirement plan despite the fact that the spouse’s loss of income impacted the household financial condition. Fortunately, with the release of Notice 2020-50, the IRS exercised its authority under the CARES Act to expand the list of factors to be treated as a “qualified individual” and these above situations among others were added to the list of qualifying individuals.
In Notice 2020-50, the IRS expanded the above list to include individuals who experience adverse financial consequences as a result of:
For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.
We will continue to keep you apprised as additional information and guidance is provided. If you have specific questions, please reach out to your blum partner or contact us here.
Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.