Page 29 - BusinessWest August 3, 2020
P. 29

By All Accounts
Taxpayers Given Relief with Retirement-plan Loans, Distributions
TBy Jim Moran CPA, MST
he Coronavirus Aid, Relief, and Economic
Security (CARES) Act has provided taxpay-
ers affected by COVID-19 with some relief in the area of retirement-plan distributions and loans.
A coronavirus-related distribution is allowed by a qualified individual from an eligible retirement plan made from Jan. 1, 2020 to December 31, 2020, up to an aggregate amount of $100,000. A qualified indi- vidual must meet one of these criteria:
• Diagnosed with the virus SARS-CoV-2 or with the coronavirus disease 2019 (COVID-19) by a test approved by the Centers of Disease Control and Pre- vention (CDC);
• Spouse or dependent is diagnosed with SARS- CoV-2 or COVID-19 by a test approved by the CDC;
• Experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, or being unable to work due to lack of childcare due to SARS-CoV-2 or COVID-19; or
• Experienced adverse financial consequences as
a result of closing or reducing hours of a business that is owned or operated by the individual due to the SARS-CoV-2 or COVID-19.
An ‘eligible retirement plan’ is defined as the type of plan that is eligible to accept tax-free rollovers. It includes 401(k) plans, 403(b) plans, governmental 457 plans, and IRAs (including SEP-IRAs and SIMPLE- IRAs). It does not include non-governmental 457(b)
plans. The $100,000 withdrawal limit applies in aggre- gate to all plans maintained by the taxpayers.
For individuals who are under age 591⁄2, the
act waives the 10% early-withdrawal penalty tax. Although the 10% penalty will be waived, any poten- tial income taxes associated with the retirement plan or IRA withdrawal will still be assessed. The act also suspends the 20% tax-withhold-
ing requirements that may apply
to an early distribution from a
401(k) or other workplace retire-
ment plan.
Just keep in mind, your tax liability owed to the IRS at the end of the year may be higher than expected if you choose not to withhold the suggested 20%.
When it comes to paying the
resulting tax liability incurred due
to the coronavirus-related distributions, the CARES Act allows you a couple of options: spread the taxes owed over three years, or pay the taxes owed on your 2020 tax return if your income (and, thus, your tax rate) is much lower in that year.
Taxpayers may also repay the coronavirus-related distributions to an eligible retirement plan as long
as the repayment is done within three years after the date the distribution was received. If the taxpayer does repay the coronavirus-related distribution in the
three-year time period, it will be treated as a direct trustee-to-trustee transfer so there will be no federal tax on the distribution. This may mean an amended return will have to be filed to claim a refund attrib- utable to the tax that was paid on the distribution amount that was included in income for those tax years.
“Your tax liability owed to the IRS at the end of the year may be higher than expected if you choose not to withhold the suggested 20%.”
Retirement-plan Loans
Loans from eligible retirement plans up to $100,000 to a qualified individual are available for any loans taken out during the six-month period from March 27, 2020 to Sept. 23, 2020. This is up
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