In my last update I shared important information about the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) with respect to Required Minimum Distributions (RMD). In this update below, I've highlighted important information that pertains to 401k accounts.
Up to $100,000 in coronavirus-related distributions (CRDs) can be withdrawn by an individual from eligible retirement plans. These distributions will be exempt from the 10 percent early distribution penalty tax. A CRD is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as:
- an individual (or the spouse or a dependent of that individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test; or
- an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.
- An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(a) plan, 403(b) plan, governmental 457(b) plan, or an IRA.
- CRDs will be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000 to an individual.
- There will be a three-year repayment period beginning the day after distribution, during which one or more repayments may be made, not to exceed, in aggregate, the amount distributed. Taxpayers can recontribute these amounts to an eligible retirement plan or IRA.
- CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
- CRDs will be taxed ratably over a three-year period, unless an individual elects otherwise.
- CRDs are not considered statutory “eligible rollover distributions” for purposes of 20 percent mandatory withholding, the notice provided to recipients of distributions eligible for rollover (i.e., “402(f) notice”) and direct rollover requirements (but do remain eligible for rollover).
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For educational purposes only. This is not a recommendation to buy, sell, or hold any product or service. Investing involves risk, including the loss of principal invested. Securities and Investment Advisory Services are offered exclusively through Registered Representatives of Hornor, Townsend & Kent, LLC. (HTK), Registered Investment Advisor, Member FINRA/SIPC, 110 Fieldcrest Avenue, Suite 20, Edison, NJ 08837, 732-225-0777. TFC is Independent of HTK.. HTK is a wholly owned subsidiary of Penn Mutual. HTK does not offer tax or legal advice - please consult a qualified professional regarding your individual circumstances.
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