Guidance issued on COVID-19 retirement withdrawals

Tax Hot Topics newsletter The IRS recently issued Notice 2020-50 to provide guidance for COVID-19-related distributions or loans from certain eligible retirement plans allowed by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Under the CARES Act, qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are COVID-19-related distributions. A COVID-19-related distribution is not subject to the 10% additional tax under Section 72(t) (including the 25% additional tax for certain distributions from SIMPLE IRAs), generally is includible in income over a three-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan within a three-year period, will not be includible in income.

The CARES Act also increases the maximum allowable plan loan amount under Section 72(p) from $50,000 to $100,000 and permits a suspension of payments for plan loans outstanding on or after March 27, 2020, that are made to qualified individuals.

The notice also expands the definition of qualified individuals who are eligible for COVID-19-related distributions and loans and provides additional clarifications and examples on the tax implications for plan participants and employers who elect to use the CARES Act relief for COVID-19-related distributions or loans.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
+1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
+1 202 861 4107

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