The CARES Act has carved out a special “coronavirus-related distribution” option for individuals and their qualified retirement plans. Pursuant to the Act, individuals are now exempt from the 10% early withdrawal penalty for distributions made on or after January 1, 2020, and before December 31, 2020. Qualified early withdrawals can be repaid over a three-year period beginning on the day after the date such distribution was received.
The Act defines a “coronavirus-related distribution” as a distribution made to an individual:
1. Who is Diagnosed with COVID-19.
2. Whose spouse or dependent is diagnosed with COVID-19.
3. Who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to COVID-19, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of business owned or operated by the individual due to COVID-19, or other factors as determined by the Secretary of the Treasury.
In determining whether any distribution is “coronavirus-related,” the administrator of an eligible retirement plan may rely on an employee’s certification that explains why he or she is entitled to a “coronavirus-related” distribution.
The CARES Act also permits loan relief for qualified individuals whose retirement plans allow for loans. Additional benefits may include:
1. An increase in limit on loans not treated as distributions; and
2. A delay of repayment.
The CARES Act also provides a temporary waiver of required minimum distribution rules for certain retirement plans and accounts made in calendar year 2020.
The benefits mentioned above are additional examples of how the Stimulus Bill is trying to stabilize the economy and provide individuals and small business owners opportunities to stay financially afloat during the COVID-19 pandemic. It will be important to stay educated on these new opportunities in order to see whether taking advantage of the CARES Act would be beneficial to you or your small business.
Miller Edwards Rambicure PLLC will be tracking any additional guidance the IRS may issue regarding the special use of retirement funds during COVID-19.