IRS Issues Q&As for Coronavirus (COVID) Relief for Retirement Plans: Solo 401k and IRAs

In May of 2020 the IRS published a questions-and-answer (Q&A) regarding the Coronavirus Aid, Relief, and Economic Security (CARES) Act, relief applicable to retirement plans which also includes solo 401k plans, IRAs and ROBS 401k plans (business financing 401k plans).

Summary of Some of the IRS Questions & Answers

  1. Expanded distribution options and favorable tax treatment for up to $100,000 (in aggregate) distributed from IRAs and employer-sponsored retirement plans.
  2. The IRS confirms that it will issue additional CARES Act guidance “in the near future.”
  3. The IRS is reviewing comments submitted which may result in expanding the qualified COVID distribution triggering events for relief.
  4. Confirms the 10% early distribution penalty does not apply to distributions from IRAs or qualified plans such as solo 401k and ROBS 41k plans.
  5. Taxable amounts withdrawn as Coronavirus related distributionsCRDs will be taxed ratably (equally) in one-third amounts in tax years 2020, 2021, and 2022, unless the taxpayer receiving them elects when filing 2020 taxes to have the CRDs taxed entirely in 2020. 
  6. Coronavirus related distributions (CRDs) will be reported when the participant files her individual income tax return. In addition to the 1040 series return itself, the taxpayer will file new Form 8915-E (the 8915 series reports certain disaster-related tax events) to determine the amount of any CRD included in income for the year, and to report CRD repayments. 
  7. The IRA custodian or solo 401k plan provider will report the CRDs on Form 1099-R, and the IRS states in the Q&A that it plans to release more guidance this year on how to report these distributions. Finally, the IRS confirms that the Form 1099-R reporting is still required even if the qualified individual repays the coronavirus-related distribution in the same year.

Coronavirus Related Distributions Update:

In June of 2020, the IRS released IRS  Notice 2020-50 to provider further guidance. The new guidance clarifies that coronavirus related distributions (CRDs) are not subject to the once-per year IRA rollover rule. Therefore, IRA related distributions  stemming from a coronavirus event that are redeposited to an IRA within the 3 year period are exempt from the one rollover per year rule. To read more about IRS Notice 2020-50, VISIT HERE.

Additional Information

Impact of the CARES Act on Retirement Plans

COVID-19 Loans & Distributions FAQs

Spreading the Income Tax over 3 Years

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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