Greater Flexibility Added to CARES Act Distribution and Loan Availability, Treatment:

Just under three months after the CARES Act was implemented, the IRS has extended the Act’s distribution and loan availability and treatment. We have summarized a few key highlights from each notice that you, as a plan sponsor, should be aware of.

IRS NOTICE 2020-50 (Issued on June 19, 2020):

In order to benefit from the coronavirus-related loan or distribution relief, one must be a “Qualified Individual”. The CARES Act originally defined a “Qualified Individual” as a person who had been personally diagnosed with the virus SARS-CoV-2 (COVID-19), had a spouse or dependent who was diagnosed with COVID-19, or had experienced adverse financial consequences due to the virus. This Notice clarified the tax benefits associated with the coronavirus-related distributions (CRD) and broadened that definition to include:

– A person who has incurred adverse financial consequences because their spouse or a member of their household experienced one of the following circumstances as a result of COVID-19:

  • Reduction in pay
  • Rescinded job offer or a delayed start date
  • Reduced self-employment income
  • Furloughed, laid-off, or reduced hours
  • Unable to work due to lack of childcare
  • Quarantine

– Tax-benefits for CARES Act Distributions

  • Qualified individuals can claim tax benefits even if the plan does not allow for CARES Act distributions.
  • No negative tax-implication is the distributions are repaid to the plan or other qualified account within three years.

IRS NOTICE 2020-51 (Issued on June 23, 2020):

This notice provides specific guidance for the 2020 requirement minimum distributions (RMDs) and grants additional time to rollover any 2020 RMDS that have already been taken. But first, a little history:

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act “SECURE Act” was signed into law. This law effectively delayed the Required Beginning Date (RBD) for RMDs from age 70.5 to age of 72 (More on the SECURE Act). So, not only was the RBD date delayed, but when paired with the CARES Act, the RMD requirement can be waived for the entire 2020 year.

How does the IRS Notice 2020-51 change this? It allows participants who previously received an RMD to roll it back into a qualified account outside the normal 60-day rollover window. The new deadline for rollovers to be returned to a qualified account is August 31, 2020. Furthermore, these RMD rules apply to both CARES Act and SECURE Act rollovers.

To view the complete IRS Notice, please visit IRS Notice 2020-50 and IRS Notice 2020-51.