Included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act are provisions that would allow qualified persons to access funds in certain retirement accounts without penalty, spread the tax or repay funds over three years, and have repayment treated as a rollover. A distribution must be a coronavirus-related distribution (CRD) to receive this treatment. IRS Notice 2020-50 expands who can qualify for a coronavirus-related distribution, confirms that the recipient certifies that the distribution is a CRD, and clarifies the tax treatment for repayments.
The CARES Act provides expanded access for distributions up to $100,000 without an early-withdrawal penalty from certain retirement accounts for “qualified individuals.”
Section 2202(a)(4)(A)(ii) of the CARES Act defined a qualified individual as someone who had been diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) or had a spouse or dependent who had been diagnosed or who had suffered certain adverse financial consequences.
Notice 2020-50 added “an individual who experiences adverse financial consequences because of any of the following:
The Notice makes clear that a qualified individual is permitted to designate a qualifying distribution as a CRD even if the plan does not. A qualified individual can have the income recognized ratably over three years or opt out and have all the income included in the year of distribution.
The Notice lays out tax treatment for when a person receiving a CRD makes a recontribution of all or part of the distribution. It also states that a CRD paid to a beneficiary of an employee or IRA cannot be recontributed. If income was recognized in the year of distribution, repayment after the first year but within three years will necessitate an amended return.
The repayment when income is recognized over three years will first offset income in the year that the payment was made, and any excess can be carried forward or back.
CRD repayments are treated as rollovers, and the Notice noted that a recontribution of a CRD will not be treated as a rollover contribution for purposes of the one-rollover-per-year limitation.
Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.
Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues.
Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are available through licensed third parties.
No bank guarantee • Not a deposit • Not FDIC/NCUA insured • May lose value • Not insured by any federal government agency
For financial professional use only. Not for use with the public.