CARES Act: Retirement Related Distributions

No 10% additional tax for coronavirus-related retirement plan distributions

Background. A distribution from a qualified retirement plan is subject to a 10% additional tax unless the
distribution meets an exception under Code Sec. 72(t).

New law. The CARES Act provides that the Code Sec. 72(t) 10% additional tax does not apply to any
coronavirus-related distribution, up to $100,000.

A coronavirus-related distribution is any distribution (subject to dollar limits discussed below), made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan, made to a qualified individual.

A qualified individual is an individual (1) who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC), (2) whose spouse or dependent is diagnosed with such virus or disease by such a test, or (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions of (3) above in determining whether any distribution is a coronavirus-related distribution.

Limit on distribution. The aggregate amount of distributions received by an individual which may be treated as coronavirus-related distributions for any tax year cannot not exceed $100,000.

Distribution can be contributed back to retirement plan. Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made.

Distribution can be included in income over three years. In the case of any coronavirus-related distribution, unless the taxpayer elects not to, any amount required to be included in gross income for such tax year will be so included ratably over the 3-taxyear period beginning with such tax year

Loans from qualified plans. The CARES Act provides flexibility for loans from certain retirement plans for coronavirus-related relief.

Effective date. These rules apply to distributions made on or after January 1, 2020, and before December 31, 2020.