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.
Am I a qualified individual for purposes of section 2202 of the CARES Act?
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.
When do I have to pay taxes on coronavirus-related distributions?
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.
May I repay a coronavirus-related distribution?
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.
What plan loan relief is provided under section 2202 of the CARES Act?
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.
MEET THE EXPERT
Partner, Director of Corporate Retirement Plans
Heather Wonderly, AIF®, CPFA
Heather has been working in the investment field since 2000. She provides guidance to 401(k) pension committees, helping them understand investments, compliance, fiduciary responsibility, and administration for corporate retirement plans. She also provides ongoing employee education to plan participants. She holds an Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor credentials and has also completed the…
- Certified Plan Fiduciary Advisor
- Series 7 and Series 66 security exams
- Accredited Investment Fiduciary®
- Corporate retirement plans