IRS provides additional CARES Act guidance

Two new notices enhance access to plan distributions and loans, and suspend required minimum distributions

On June 19, the Internal Revenue Service (IRS) issued new guidance (Notice 2020-50) providing enhanced access to plan distributions and plan loans under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Shortly thereafter, the IRS released Notice 2020-51 providing guidance relating to the CARES Act suspension of required minimum distributions (RMDs).

CARES Act overview

Among other items, the CARES Act waives the 10% additional tax for early distributions associated with any “coronavirus-related distribution” (CRD) taken by qualified individuals in 2020 from a defined contribution (DC) plan or individual retirement account (IRA), for amounts not to exceed $100,000. The CARES Act also allows CRD income to be spread over three years and CRDs to be repaid within three years.

In addition, the CARES Act temporarily increases the dollar amount available for plan loans to qualified individuals from $50,000 to $100,000, and increases the percentage test limit for loans from 50% of the present value of the participant’s vested benefit to 100% of the present value of his or her vested benefit under the plan. For loans to qualified individuals outstanding on or after March 27, 2020, if any repayment on the loan is due from March 27, 2020 to December 31, 2020, the repayment may be delayed for one year from the original due date.

The CARES Act also permits taxpayers in a DC plan or an IRA with an RMD due in 2020 to skip those RMDs this year. This includes anyone who turned age 70-1/2 in 2019 and would have had to take the first RMD by April 1, 2020. If an RMD had already been received during 2020, a participant could roll it over and defer paying taxes, including rolling it back into the plan, but that had to be done within 60 days of receipt.

IRS Notice 2020-50

While eligibility for the special loan and CRD rules is limited to individuals meeting specified criteria related to the COVID-19 pandemic, Notice 2020-50 expands eligibility for these rules to include an individual who experiences adverse financial consequences as a result of:

  • The individual having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19.
  • The individual’s spouse or a member of the individual’s household being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19; being unable to work due to lack of childcare due to COVID-19; having a reduction in pay (or self-employment income) due to COVID-19; or having a job offer rescinded or start date for a job delayed due to COVID-19.
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For this expanded relief, a member of the household is designated as someone who shares the individual’s principal residence, thus extending this relief up to more than just family members. A roommate, partner, or otherwise unrelated person living in the home would each qualify as a household member.

The guidance further states that administrators can rely on an individual’s certification that the individual is a qualified individual (providing a sample certification), but it also notes that an individual must actually be a qualified individual in order to obtain favorable tax treatment.

Beyond these developments, Notice 2020-50 clarifies that employers can choose whether to implement these CRD and loan rules, and notes that qualified individuals can claim the tax benefits of CRD rules even if plan provisions aren’t changed. While it is anticipated that those eligible retirement plans which permit CRDs will generally accept recontributions (repayments) of CRDs (which are to be treated as rollover contributions), if a plan does not accept any rollover contributions, it is not required to change its terms or procedures to accept repayment of CRDs.

On a related note, CRD repayment allows taxes paid on a CRD to be refunded by filing an amended tax return. However, the IRS said in Notice 2020-50 that if the funds were returned before the tax return for the year was filed (including extensions), then the CRD income for that year would not count as income and no amended tax return would be necessary.

Notice 2020-50 also provides employers a safe harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020, but notes that there may be other reasonable ways to administer these rules.

IRS Notice 2020-51

In this Notice, the IRS extends the 60-day rollover period for RMDs that were already received during 2020 to Aug. 31, 2020. For example, if a participant in a 401(k) plan received a single-sum distribution in January 2020, part of which was treated as ineligible for rollover because it was considered an RMD, that participant will have until Aug. 31 to roll over that part of the distribution.

An IRA owner may also repay a distribution to the distributing IRA, provided the repayment is made by Aug. 31, 2020. This Notice states that this repayment is not subject to the limitation of one rollover per 12-month period, and the restriction on rollovers for inherited IRAs.

Notice 2020-51 also provides important transition relief for plan administrators in relation to the Setting Every Community Up for Retirement Enhancement (SECURE) Act change to the required beginning date for RMDs. (The SECURE Act changed the required beginning date generally to April 1 of the year following the year in which an individual reaches age 72 [instead of 70-1/2], effective with respect to individuals who reach age 70-1/2 in 2020 or later.) Under this Notice, a distribution from a plan made during 2020 to a participant who will turn age 70-1/2 in 2020 that would have been an RMD but for the change in the required beginning date is not required to be treated as an eligible rollover distribution for administrative purposes.

This Notice also provides relief to allow taxpayers who receive certain distributions, including those that would normally be treated as part of substantially equal periodic payments (SEPPs), to roll them into an eligible retirement plan.

In addition, Notice 2020-51 provides two sample amendments that employers may adopt to give plan participants and beneficiaries whose RMDs are waived a choice as to whether or not to receive the waived RMD. It also answers questions regarding the waivers of RMDs for 2020 under the CARES Act.

Guidance from the Department of Labor (DOL) and the IRS on various retirement-related issues is being released at warp speed lately, but we’ll continue to keep you posted.


PlanSponsor, “IRS makes more people eligible for CARES Act distributions and loans,” John Manganaro, June 22, 2020

Investment News, “IRS provides expanded tax breaks for coronavirus-related distributions,” Ed Slott, June 22, 2020

NAPA Net, “IRS grants rollover relief for RMDs, provides transition relief,” Ted Godbout, June 23, 2020

PlanSponsor, “IRS Notice details RMD rollback process under CARES Act,” John Manganaro, June 23, 2020

Investment Company Institute (ICI), “IRS provides guidance on CARES Act distributions, loans, and RMD suspension,” Elena Barone Chism, June 26, 2020

Important information

Blog header image: Rob + Julia Campbell / Stocksy

This is not intended to be tax advice. The information presented is based on current interpretation of federal tax law. State income tax laws may differ. Please consult your tax advisor for detailed information. Invesco representatives are not tax advisors. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. It is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax advisor for information concerning their individual situation.

Jon Vogler
Senior Analyst
Retirement Research, Invesco Consulting

Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.

Prior to joining Invesco in 2008, Jon spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.

Jon earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He has a B.A. in History from Rutgers, The State University of New Jersey.

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