IRS Expands Relief For Coronavirus-Related Retirement Plan Withdrawals

CARES Act will allow people to take loans of up to $100,000 from an IRA



The Internal Revenue Service provided guidance Friday to taxpayers who are taking advantage of some provisions in the CARES Act that allow them to take out money from their retirement accounts to deal with the economic fallout of the COVID-19 pandemic.

With the Labor Department reporting Thursday that first-time unemployment claims amounted to 1.5 million last week, and with a total of 29.1 million workers receiving benefits, many people are turning to their retirement plans as a source of money to pay for current expenses. The CARES Act that Congress passed in late March includes provisions enabling people to take distributions or loans of up to $100,000 from an IRA, 401(k) or 403(b) plan and still get favorable tax treatment.

In Notice 2020-50, the IRS spelled out the details to help retirement plan participants affected by COVID-19 take advantage of these CARES Act provisions regarding retirement plan distributions and loans. That includes expanding the categories of individuals who are eligible and giving guidance and some examples of how that will reflect the tax treatment of the distributions and loans on qualified individuals’ federal income tax filings.

The CARES Act allows qualified individuals to treat as coronavirus-related distributions up to $100,000 in distributions from their eligible retirement plans (including IRAs) between Jan. 1 and Dec. 30, 2020. A coronavirus-related distribution isn’t subject to the 10 percent additional tax that would otherwise typically apply to distributions made before an individual reaches the age of 59-½. A coronavirus-related distribution can be included in income in equal installments over a three-year period. People have three years to repay a COVID-19-related distribution to a plan or IRA and undo the tax consequences of the distribution.

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Source: Accounting Today

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