IRS Issues CARES Act Guidance: Retirement Plan Distribution and Loan Provisions

“The Internal Revenue Service (IRS) recently issued guidance in the form of questions and answers (Q&As) regarding the retirement provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) set forth in Section 2202 of the CARES Act. While not addressing all open issues, the Q&As provide retirement plan sponsors with a number of helpful clarifications regarding the CARES Act retirement provisions that we previously summarized in an information memo that can be found here. 

As background, Section 2202 of the CARES Act introduced the following special rules for retirement plans:

• Coronavirus-Related Distributions. Qualified individuals may elect distributions from an eligible retirement plan (e.g., a 401(k) or 403(b) plan) of up to $100,000 during the period from January 1, 2020 through December 31, 2020. These distributions are not subject to the normally applicable 10% tax for in-service withdrawals made prior to attaining age 59-1/2 and may be included ratably in income over a three-year period. Qualified individuals also may elect to repay the distributions to the plan over a three-year period. 

• Plan Loans. The maximum loan amount available to qualified individuals was increased to the lesser of $100,000 (minus the value of outstanding loans), or 100% of the participant’s vested account balance under the plan, for plan loans made between March 27, 2020 and September 22, 2020. Further, if a loan is outstanding on March 27, 2020, the due date for any repayment due between March 27, 2020 and December 31, 2020 may be delayed for up to one year, subject to an interest adjustment to reflect the delay in repayment. 

Click here for more important issues addressed in the Q&As".”

Source: John C. Godsoe, Bond, Schoeneck & King