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On June 19, 2020, The Internal Revenue Service announced guidance via Notice 2020-50 for COVID-19 coronavirus-related distributions from retirement plans under the CARES Act. Through the notice, which aims to help retirement plan participants better understand and take advantage of the CARES Act provisions, the IRS also extended relief to individuals whose spouses and household members are suffering financial consequences due to COVID-19.

Under the CARES Act, signed into law on March 27, 2020, qualified individuals younger than age 59½ may take distributions of up to $100,000 from eligible retirement plans and IRAs between January 1, 2020 and December 31, 2020 and not be subject to the 10 percent additional tax that would generally apply.

These distributions can be included in income in equal installments over a three-year period. Individuals also have three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution. It is always wise to speak with your tax advisor and financial planner prior to making any tax-related decisions.

The CARES Act has authorized plans to implement certain relaxed rules for qualified individuals regarding loan repayment terms for qualified plans. Plans can suspend loan repayments due from March 27, 2020 through December 31, 2020. The dollar limit on loans made between March 27, 2020 and September 22, 2020 has been raised from $50,000 to $100,000.

Notice 2020-50 expands the definition of a qualified individual and takes into account factors including reductions in pay, rescissions of job offers and delayed job start dates. Qualified persons include individuals, spouses and household members suffering adverse financial consequences due to the impact of the COVID-19.

According to the notice, qualified individuals include:

– Anyone who is diagnosed with COVID-19 or has a spouse or dependent diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention.

– Anyone who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having reduced work hours due to COVID-19. Spouses and other household members are also included.

– Anyone not able to work due to lack of childcare due to COVID-19.

– Anyone who has closed or reduced hours of a business that they own or operate due to COVID-19.

– Anyone who has their self-employment income reduced due to COVID-19.

– Anyone who has a job offer rescinded or job start date delayed due to COVID-19.(1)

The notice clarifies employers can choose to implement these coronavirus-related distribution and loan rules, and it maintains qualified individuals can claim the tax benefits of the distribution rules even if their plan provisions are not changed. Plan administrators can rely on an individual’s certification the individual is a qualified person, but the notice stresses the individual must be a qualified individual to take advantage of the favorable tax treatment.

Finally, the notice provides employers with a safe harbor process for applying suspensions of loan repayments that would otherwise be due through the end of 2020.

As a reminder, be sure to speak with your tax advisor and financial planner prior to acting on any decisions that could have tax ramifications.

For more information on Notice 2020-50, visit https://www.irs.gov/pub/irs-drop/n-20-50.pdf or https://www.irs.gov/newsroom/relief-for-taxpayers-affected-by-covid-19-who-take-distributions-or-loans-from-retirement-plans.

Authored by Dennis Culver, Insight Wealth Strategies

Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.