The Internal Revenue Service announced Friday that it has
expanded access to plan distributions and plan loans of the CARES Act to
include eligibility for retirement-plan participants affected by the COVID-19
pandemic, according to USA Today. This expansion would "take into
account additional factors, such as reductions in pay, rescissions of job
offers, and delayed start dates." The IRS will also be providing information
and examples for these qualified individuals "to reflect the tax treatment of
these distributions and loans on their federal income tax filings."
This Notice
2020-50 also expands the criteria for a qualified individual to include
anyone who is diagnosed or has a spouse or dependent diagnosed with COVID-19,
based on the test from the Centers for Disease Control and Prevention (CDC) .
Along with this, a qualified individual may be someone who has experienced
adverse financial consequences or challenges as a result of the diagnosed
individual, individual's spouse, or member of the individual's household.
These challenges include many different ways the coronavirus
has affected the financial state of an individual or household. These include
being quarantined, furloughed, laid off, or having work hours reduced because
of COVID-19; being unable to work because of lack of childcare during COVID-19;
closing or reducing hours of a business, which they own or operate, due to
COVID-19; having pay or self-employment income reduced; or having a job offer
rescinded or the start date for a job delayed due to COVID-19.
This comes at a time in which most Americans are
experiencing economic hardship and complications because of the financial
effects of the coronavirus pandemic. The Coronavirus Aid, Relief, and Economic
Security Act has allowed these Americans struggling economically to withdraw
money from their retirement accounts. Investors of any age can withdraw as much
as $100,000 from retirement accounts including 401(k) plans and individual
retirement accounts without paying an early-withdrawal penalty of 10 percent
this year. If the money is returned to the account within three years, they can
avoid taxes on the withdrawal.
While many people are struggling to pay their bills after
losing their jobs or are facing other financial problems from the coronavirus
crisis, experts do not encourage taking money out of retirement accounts as a
solution to current issues.
"People work hard for their retirement savings, and you
should dip into that as a last resort," says Charlie Nelson, CEO of retirement
and employee benefits at Voya Financial, to USA Today. "Americans need
to think long and hard about other sources of savings first before withdrawing
money from retirement funds."
The IRS has clarified that employers can decide whether to
implement the coronavirus-related distribution and loan rules, but "qualified
individuals can claim the tax benefits of coronavirus-related distribution
rules even if plan provisions aren't changed."
