On June 19, 2020, the IRS released Notice 2020-50 (the Notice) which provides additional guidance on tax-favored distributions from retirement plans and expanded plan loan relief under the “Coronavirus Aid, Relief, and Economic Security Act” (the CARES Act).
As noted in our prior alert, the CARES Act provides that during the period January 1, 2020 to December 30, 2020, “qualified individuals” may take coronavirus-related distributions of up to $100,000 from their eligible retirement plans. A qualifying coronavirus-related distribution is not subject to the 10% additional tax on early distributions that would otherwise normally apply to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income ratably over the three-year period commencing with the year of distribution and the individual taking the distribution has three years to repay the distribution to the plan, if they so choose, which has the effect of reversing the tax income tax consequences of the distribution.
In addition, the CARES Act provides that plans may implement relaxed rules for qualified individuals relating to retirement plan loan amounts and repayment terms. Specifically, plans may suspend loan repayments that are due from March 27 through December 31, 2020, and the dollar limit on loans made between March 27 and September 22, 2020, is increased from $50,000 to $100,000.