27-Jun-20
Coronavirus Related Distribution Clarifications
Take-Away: The IRS published two Notices in the past ten days that impacts distributions from qualified plans. While they were reported in missives last week, due to a couple of follow up questions that I received, I thought I would clarify a couple of limitations contained in those two Notices.
Notice 2020-50: This was released on June 19, 2020.
- This Notice expands the definition of qualified individual to include a spouse or a member of a household who experiences adverse financial consequences due to COVID-19 having a member of a the household being quarantined, furloughed, laid-off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay or self-employment income, or having a job offer rescinded. Member of household is defined as someone who shares the qualified individual’s principal residence. This other person does not have to be related by blood to the qualified individual. In other words, this other person could be a roommate who is non-family member who occupies the same principal residence.
- As previously reported, if an individual takes a coronavirus-related distribution, they have the ability to repay that distribution within three years, and file an amended Form 1040 to reflect that repayment. The IRS confirmed in this Notice, however, that non-spouse beneficiaries who take a coronavirus-related distribution cannot repay the coronavirus-related distribution. This position seems like a reversal of previous IRS statement on who can repay a distribution, so stay tuned on whether this restriction on the ability to repay a coronavirus-related distribution will stand.
Notice 2020-51: This was released on June 23, 2020.
- This Notice extends the deadline for the repayment (‘do-over’) of previously taken required minimum distributions earlier this year to August 31, 2020. Accordingly, all unwanted required minimum distributions taken in 2020 can now be repaid/returned/rolled over to an IRA or a qualified plan. Consequently, the scope of this rollover option extends even to non-spouse IRAs or qualified plan beneficiaries who could never before do a Therefore, the normal 60-day rollover period is now extended to August 31, 2020. This extension also suspends, but for this period only, the once-per-year limitation on a 60-day rollover.
- However, this Notice only applies to required minimum distributions taken earlier this year. Withdrawals from non-required minimum distribution funds are still limited to the one-rollover-per-year rule, and the standard 60-day rollover period.
Conclusion: While these two Notices are good news for those individuals who take distributions from their retirement accounts this year, the exceptions or limitations to these ‘new’ rules will simply add more confusion for a lot of people who already struggled to navigate the Tax Code’s retirement plan distribution rules.