CARES Act Retirement Plan Provision Update

Additional guidance on the implementation of the CARES Act retirement plan provisions was recently made available on the IRS website. The information outlined in the IRS’ Q&A provides clarification and additional context for some of the more vague stipulations in the law.

Below, we’ve outlined four key points of clarification.

Question 3 from the FAQ confirms the definition of a “qualified individual” for purposes of the CARES Act COVID-19 loan and withdrawal provisions. Many commentators have mentioned that a spouse losing their job or experiencing financial hardship because of COVID-19 is not one of the current factors that define a “qualified individual.” The Q&A indicates that the Treasury Department and IRS have received comments requesting that the list of factors be expanded and that these requests are under review. We will update you as this information becomes available.

Question 6 confirms that a coronavirus withdrawal is taxable over a three year period commencing in the year of the withdrawal (2020). The tax is payable one-third for each year unless the participant decides to pay 100% of the tax in the first year.

Question 7 clarifies that if a participant repays their coronavirus withdrawal in the 2021 or 2022 tax year after receiving their payment in 2020, they may amend their prior-year tax return(s) to claim a refund of the tax attributable to the withdrawal taken in 2020.

Question 8 clarifies that an employer has the option to permit an additional year for repayment of loans from eligible retirement plans (not including IRAs) for qualified individuals. Our previous interpretation of this rule was that this was not optional and that employers were required to provide the additional year for repayment.

If there are specific provisions of the CARES Act that you have questions about, please contact your Aldrich Advisor. We will continue to provide updates as additional guidance is issued. For more resources, visit our COVID-19 Resource Center.