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What to Know About Changes to Retirement Plan Participant Rules


The new Coronavirus Aid, Relief and Economic Security (CARES) Act includes favorable tax rules for qualified retirement plan and IRA participants adversely affected by the COVID-19 pandemic. Now, the IRS has issued new guidance that expands the reach of these CARES Act provisions and clarifies other key points (IRS Notice 2020-50, 6/19/20).

Jun 23rd 2020
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First, here’s a brief recap of the main CARES Act provisions for retirement plan distributions and loans. Normally, distributions from qualified retirement plans and IRAs are subject to a 10 percent penalty tax— on top of regular income tax—if made before age 59½, unless a special exception applies.

The CARES Act establishes a new exception for coronavirus-related distributions of up to $100,000 from a qualified plan or IRA between January 1 and December 30, 2020. Such a distribution is exempt from the 10 percent penalty tax. Furthermore, the COVID-19 related distribution is taxed evenly over a three-year period and the participant has until the end of the three years to repay the amount to a qualified plan or IRA.

If the amount is repaid in full within the three-year window of opportunity, there’s zero tax liability. In addition, the CARES Act relaxes the existing rules for loans from qualified retirement plans. Notably, the new law allows a plan to suspend loan repayments that are due from March 27, 2020 through December 31, 2020, while effectively doubling the dollar limit on loans from $50,000 to $100,000.

Now, the recent IRS Notice expands the definition of a “qualified individual” who may benefit from the CARES Act provisions. It takes into account additional factors such as reductions in pay, rescissions of job offers and delayed start dates affecting the individual, as well as adverse financial consequences arising from the impact of COVID-19 on a spouse or household member.

Specifically, as established by Notice 2020-50, a qualified individual is anyone who meets either one of these two tests:

1. The person (or his or her spouse or dependent) is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, "COVID-19") by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act).

2. The person has adverse financial consequences resulting from any member of the household experiencing one of the following:

  • Being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19
  • Being unable to work due to lack of childcare due to COVID-19
  • Closing or reducing hours of a business that they own or operate due to COVID-19
  • Having pay or self-employment income reduced due to COVID-19
  • Having a job offer rescinded or start date for a job delayed due to COVID-19

Notice 2020-50 also clarifies that employers can choose whether to implement these coronavirus-related distribution and loan rules. The IRS says that plan participants may claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren't changed. Administrators can rely on an individual's certification that the he or she is a qualified individual for these purposes.

Finally, the new guidance provides employers with a safe-harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020. The Notice states that there may be other reasonable ways to administer these rules.

Refer to Notice 2020-50 for more details about how to apply the CARES Act rules to coronavirus-related distributions and loans from qualified plans. This tax relief and other information relating to the tax aspects of COVID-19 are available on the IRS Coronavirus Tax Relief pages of

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