When the CARES Act passed last spring we wrote about the provisions, which allowed IRA & 401(K) holders to access their accounts while avoiding tax consequences.  We also noted that the devil is often found in the details.  Nevertheless, in late June, the IRS issued Notices 2020-50 and 2020-51.  You should review these publications and/or confer with your retirement consultant/administrator before taking any distribution or loan.

First and most important from a temporal viewpoint.  If you took money out of a plan at any time in 2020 as a Required Minimum Distribution (RMD), you can roll it back and thereby reverse the tax consequence if you do so before August 31, 2020See Notice 2020-51.

We now have some definition as to who is qualified to either distribute or borrow money from an IRA or 401(K).  We knew people who were diagnosed with coronavirus and those with a spouse or dependents with the affliction were qualified.  That has been expanded to include any account holder whose spouse or dependents were diagnosed.  In addition to having the coronavirus, if you or a household member had COVID-19 negatively affect:

  • employment hours;
  • work hours to care for children;
  • business hours; and/or,
  • a job offer, through either delayed start or withdrawal of offer.

You are eligible to borrow or distribute up to $100,000 from the IRA or qualified plan (if the plan allows it).  Actual need or quantifiable damage related to COVID-19 are not factors, but you should maintain records of the triggering event.  You report these transactions on Form 8915-E (not yet available), including any funds you repay to the plan within the three year window in which you are permitted to do so.  It appears that you will report the distribution as income and it should follow that you will pay tax on that withdrawal.  However, if you do pay the money back into the plan, you again report that repayment on another Form 8915-E and then amend your tax return to get any tax you paid refunded.  If you distribute and do not repay, the penalty for early withdrawal of 10% is avoided.

Also, a reminder if you are repaying a loan to a qualified plan, you may defer payments due between March 27, 2020 and December 31, 2020, by a year.  That should be confirmed with the plan administrator.

So there is now more flesh on the regulatory bones of pandemic relief.