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Yes, another news flash related to the coronavirus! The IRS has implemented several measures in response to the COVID pandemic. One major one is the provision that allows for temporary changes to retirement plan withdrawal and loan rules.
The IRS is allowing special treatment of retirement plan withdrawals and loans for those directly impacted by COVID. This includes those who have been directly diagnosed with the virus, as well as those who have a spouse or dependent diagnosed with COVID-19. It also includes those who have experienced direct financial hardship due to being quarantined, furloughed, laid off or having work hours reduced. Also included are those who had a business directly impacted or who face child care challenges due to COVID, resulting in work being affected.
Below we detail the changes to the two distribution types below. This COVID relief applies to distributions made from an eligible retirement plan during the 2020 calendar year.
This new provision eliminates the 10% additional tax for early withdrawals from qualified plans. It also allows for distributions to be included with your income over a three-year period. For example, if you took a $60,000 distribution in 2020, you’d report $20,000 income on each of your tax returns for 2020, 2021, and 2022. Or you can choose to have it taxed all in one year. You can also choose to repay the distribution within three years of the distribution, in order to avoid paying taxes on the distribution.
The COVID loan relief allows several changes. First, it provides an additional year of repayment on loans. Those who take retirement plan loans may also choose to increase the limit on the amount they can borrow. Previously, only $50,000 was permitted with 401k loans. Now, those affected directly by COVID may take up to $100,000 in loan proceeds. Certain restrictions apply.
Required minimum distributions are also waived for the 2020 tax year. So retirees who meet RMD rules can choose not to take their RMD in 2020.
Click Here to visit the IRS site for full details on these changes.
Contact us if you have questions as it pertains to your specific situation…we’re happy to help!