IRS expands guidance on waiver of 2020 required minimum distributions and COVID-19 related distributions and loans from retirement plans.
2020 Required Minimum Distributions
The CARES Act eliminated the requirement to take a required minimum distribution (RMD) from certain retirement plans in 2020. IRS Notice 2020-51 provides additional guidance including:
- Providing relief to allow taxpayers who receive certain distributions to roll them into an eligible retirement plan
- Extension of 60-day deadline for rollover of certain distributions to August 31, 2020
- Permits repayments of RMDs previously distributed from an IRA
COVID Related Distributions and Loans from Retirement Plans
The CARES Act waived the 10% penalty on early withdrawals from qualified retirement plans taken in 2020 for coronavirus-related distributions up to $100,000.
IRS Notice 2020-50 expands the scope of qualified withdrawals to include:
- Spouses and dependents who have suffered financial hardship due to quarantine, being furloughed or laid off, or had hours/pay cut due to COVID-19.
- Individuals having a reduction in pay (or self-employment income) or having a job offer rescinded or delayed start date due to COVID-19.
- Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.
For purposes of the above factor, a member of an individual’s household is someone who shares the individual’s principal residence.
Any income attributable to a qualified withdrawal is still subject to tax over a three-year period, and taxpayers may re-contribute the withdrawn amounts without regard to annual limits on contributions if made within three years.