- 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unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19;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unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or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.
Types of retirement plans and IRAs that 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
Under the CARES Act, a distribution designated as a coronavirus-related distribution by an employer retirement plan is treated as meeting the distribution restrictions for qualified cash or deferred arrangements under a 401(k) plan, 403(b) plan, governmental 457(b) plan, and the federal Thrift Savings Plan. Thus, for example, an employer may expand the distribution options under its plan to allow an amount attributable to an elective, qualified nonelective, qualified matching, or safe harbor contribution under a qualified cash or deferred arrangement to be distributed as a coronavirus-related distribution even though it is distributed before an otherwise permitted distributable event, such as severance from employment, disability, or attainment of age 59 ½.
However, the CARES Act does not otherwise change the rules for when plan distributions are permitted to be made from employer retirement plans. Thus, for example, a qualified plan that is a pension plan (such as a money purchase pension plan) is not permitted to make a distribution before an otherwise permitted distributable event merely because the distribution, if made, would qualify as a coronavirus-related distribution. Further, a pension plan is not permitted to make a distribution under a distribution form that is not a qualified joint and survivor annuity without spousal consent merely because the distribution, if made, could be treated as a coronavirus-related distribution.
Coronavirus-related distributions from workplace retirement plans and IRAs
A coronavirus-related distribution is a distribution made from an eligible retirement plan (including an IRA) to a qualified individual from Jan. 1, 2020, to Dec. 30, 2020, up to a combined limit of $100,000 from all plans and IRAs. A workplace retirement plan is not required to offer coronavirus-related distributions.
However, even if your employer does not identify your distribution as coronavirus-related, you may still treat it as such on your federal income tax return if you’re a qualified individual and the distribution meets the requirements to be a coronavirus-related distribution. A qualified individual’s designation of a coronavirus-related distribution may be different than how the individual’s employer retirement plan treats that same distribution.
Coronavirus-related distributions are not limited to amounts that correspond to an individual’s need for funds or any related financial consequences.
Coronavirus-related distributions may include:
- Distributions from an IRA
- Distributions from a retirement plan account,
- Distributions that would have been 2020 RMDs except for RMD relief under the CARES Act that you didn’t put back in the IRA or plan
- Loan offsets from a plan loan after leaving employment
- If you had an outstanding plan loan balance when you leave employment, the loan balance is usually offset against your benefit.
Coronavirus-related distributions do not include:
- Corrective distributions of elective deferrals and employee contributions that are returned to the employee to comply with Section 415 limitations
- Corrective distributions of elective salary deferrals in excess of the 402(g) limits
- Corrective distributions of excess contributions under Section 401(k) and excess aggregate contributions under Section 401(m)
- Distributions that are permitted withdrawals from an eligible automatic contribution arrangement within the meaning of Section 414(w)
- Loans treated as deemed distributions under Section 72(p)
- Dividends paid on applicable employer securities under Section 404(k)
- Costs of current life insurance protection
- Distributions of premiums for accident and health insurance
- Prohibited allocations that are treated as deemed distributions pursuant to Section 409(p)
Taxes on distributions: Coronavirus-related distributions:
- Are included in taxable income
- Over a three-year period, one-third each year, or
- If elected, in the year you take the distribution.
Recontribution of a distribution: You may recontribute all or part of certain coronavirus-related distributions to an eligible retirement plan (including an IRA) within three years beginning on the day after the date you received the distribution. Repayments will be treated as though they were eligible direct rollovers. Amounts repaid are not subject to any contribution or rollover limits.
The distribution is treated as though you repaid it in a direct trustee-to-trustee transfer so you don’t owe federal income tax on the distribution. You can claim a refund for any income taxes paid on amounts previously included in income that were subsequently repaid timely.
A workplace retirement plan accepting a recontribution can reasonably rely on an individual’s certification that the individual satisfies the conditions to be a qualified individual in determining that the recontribution is from a coronavirus-related distribution, unless the administrator has actual knowledge to the contrary.
Only coronavirus-related distributions that are eligible for tax-free rollover treatment under Section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) may be recontributed.
For example, any coronavirus-related distribution from a workplace retirement plan or IRA paid to a qualified individual as a beneficiary of an employee or IRA owner - other than the surviving spouse of the employee or IRA owner – is not eligible to be repaid.
Normally, a hardship distribution is not an eligible rollover distribution. However, if the hardship distribution meets requirements to be a coronavirus-related distribution to a qualified individual, it can be recontributed to an eligible retirement plan.
The 10% additional tax on early distributions does not apply to coronavirus-related distributions
The 10% additional tax on early distributions does not apply to any coronavirus-related distribution. Typically, distributions received from an IRA or retirement plan before reaching age 59 ½ are subject to an additional 10-percent tax, unless an exception applies.
Plan loan limits may be increased to $100,000 with an extra year to repay for qualified individuals
Special rules are available for plan loans made to qualified individuals. Loans from a qualified plan to a qualified individual on or after March 27, 2020, and before September 23, 2020, may be made up to the lesser of:
- $100,000 (rather than the regular $50,000 limit), minus loans you have outstanding, or
- 100% of your nonforfeitable account balance or accrued benefit.
Amounts in IRAs are eligible for coronavirus-related distributions, but you may not take loans from an IRA.
For both new and existing loans, plans can also suspend loan repayments due between March 27, 2020 and December 31, 2020, for up to one year, although, typically, at least those repayments originally scheduled for 2021 must resume in January 2021 (Notice 2020-50 provides a safe harbor for plans that would like to implement a suspension in loan repayments). This effectively gives you up to six years (instead of five) to repay a typical plan loan. When payments resume, your payment will be adjusted for interest that accrued on the loan during the suspension period.
Expanded loan and distributions under the CARES Act are optional in an employer sponsored retirement plan
An employer is permitted to choose whether, and to what extent, to amend its plan to provide for expanded coronavirus-related distributions and/or loans that satisfy the provisions of the CARES Act. For example, an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules.
Even if your employer does not identify your distribution as coronavirus-related, you may treat it as such on your federal income tax return if it meets the requirements to be a coronavirus-related distribution.
You own the accounts held in IRAs and IRA-based plans (SEPs, SIMPLEs, SARSEPs) and generally have control over withdrawals from those accounts.Information for Plan Sponsors
In response to the coronavirus emergency, the IRS extended the due dates for certain required plan updates and returns, including funding relief for defined benefit plans. See also the Q&As on coronavirus-related relief for retirement plans and IRAs.
Deadlines for updating plan documents for expanded coronavirus-related loan and distribution options
Plan amendments related to the coronavirus-related distributions and loans must be adopted by the last day of the first plan year beginning on or after January 1, 2022, for non-governmental plans. For Section 414(d) governmental plans, amendments must be adopted by the last day of the first plan year beginning on or after January 1, 2024.
Plan amendments must be retroactive to cover the affected periods. The plan must also operate in accordance with any plan amendment prior to adoption of the amendment.
Required contributions to a single-employer defined benefit plan due during 2020 are delayed
The CARES Act provides that all minimum required contributions (including quarterly contributions) to a single-employer defined benefit plan (other than a CSEC plan) that are due during the 2020 calendar year can be delayed until Jan. 1, 2021. Interest will accrue on any unpaid contributions.
Additionally, plan sponsors can elect to use the Adjusted Funding Target Attainment Percentage (AFTAP) for the plan year ending before January 1, 2020, as the AFTAP for plan years that include any part of calendar year 2020.
