the publication explains the new provisions which allow enhanced access to plan loans and plan distributions. 

CARES Act Guidance for Plan Sponsors and Participants Updated

Fulcrum Partners. Deferred Compensation News

On June 19, 2020, the Internal Revenue Service (IRS) updated and clarified issues of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) guidance for plan sponsors and plan participants. Issued as Notice 2020-50 (“Guidance for Coronavirus-Related Distributions and Loans from Retirement Plans Under the CARES Act,”) the publication explains the new provisions which allow enhanced access to plan loans and plan distributions. 

“Qualified individual” is the language used to define the categories of individuals who are eligible for these types of distributions and loans. Under the new IRS guidance, the definition of “qualified individuals” is expanded to allow more retirement plan participants to take advantage of CARES Act provisions. 

Notice 2020-50 includes examples on how to reflect the tax treatment on federal income tax filings of loans and distributions, examples of what constitutes certification of eligibility, and other specific and insightful clarifications. 

The following summarizes some of the key points of this update. 

Important Information About CARES Act Guidance for Plan Sponsors and Participants

Expanding the Definition of a Qualified Individual

  • A qualified individual is anyone diagnosed with, or whose spouse or dependent is diagnosed with, SARS-CoV-2 (or the coronavirus disease 2019) based upon testing approved by the Centers for Disease Control and Prevention, or
  • Anyone who, as a result of COVID-19,  experiences adverse financial consequences because the individual, his or her spouse, or a member of the household was quarantined, furloughed, laid off, or had reduced hours; or was unable to work due to lack of childcare; or had closed or reduced the hours of a business they own or operate; or had pay or self-employment income reduced; or had a job offer rescinded or job start date delayed. 

Retirement Plan Guidelines

  • Plan sponsors may elect to relax certain rules for qualified individuals. Plans may suspend loan repayments due between March 27, 2020 and December 31, 2020. 
  • The amount of loans made between March 27-December 31, 2020 may be raised from $50,000 to $100,000. 

Tax and Repayment Information

  • Qualified individuals may treat retirement plan distributions from their eligible plans (including IRAs) up to $100,000 as coronavirus-related distributions, if the distribution occurred in the 2020 calendar year. 
  • Qualified coronavirus related distributions are not subject to the ten percent additional tax that typically applies to distributions made before an individual reaches age 59 and a half. 
  • A coronavirus related retirement plan distribution may be included as income over a three-year period, with the income reflected as three equal installs. 
  • An individual also has up to three years to repay in an IRA, a coronavirus related plan distribution, thereby undoing the tax consequences of the distribution. 

Most importantly, plan sponsors, employers, and individuals must be aware that CARES Act provisions, stimulus programs, and other types of aid or support resulting from or related to the COVID-19 pandemic are specific, sometimes complex, and may be revised over time. Professional guidance can be important for avoiding mistakes and preventing costly tax payments and/or penalties. 

#COVID19 #CARESAct #plansponsor #retirementplan 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC. Unless otherwise noted, VAI/VSI, LSF and BDO Alliance USA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

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