Learn if You Qualify for a Coronavirus-Related Distribution

By McClintock & Associates | November 11, 2020

The coronavirus pandemic has caused many hardships throughout 2020, with health and the economic effects being felt by almost every family in the country. As a result, the government has issued many new aid-providing bills in this timeframe.

The most significant of these to date is the CARES Act. While most of the news around this act has been small business loans and direct payments to individuals, there are other components meant to help individuals and families, including Coronavirus-Related Distributions (CRDs). This benefit is meant to target aid to those who are suffering and have a retirement account which they can access to pull out funds for their expenses.

CRDs can be taken, any time in calendar year 2020, from IRAs or retirement plans that are not defined benefit plans, with an overall limit of $100,000. These distributions have three specific tax benefits:

  • A CRD is exempt from the 10% early distribution penalty, which is typically assessed to individuals who are age 59 ½ or over.
  • The taxable income generated by a CRD can be spread ratably over three years. Normal distributions are required to be included in income the year in which the distribution occurs.
  • All, or part, of a CRD can be repaid to an IRA or company plan within three years. This allows younger taxpayers the ability to reinstate the retirement account value for tax deferred growth after the immediate need for funds has passed.

In order to be considered qualified to take a CRD, a taxpayer would generally fall into one of three categories:

  • Individuals who are diagnosed with the SARS-CoV-2 or COVID-19 virus
  • Individuals whose spouse or dependent is diagnosed
  • An individual who experiences adverse financial consequences due to the individual, a spouse, or a member of the household

The third category is the one with the most interpretation, as only limited guidance has been issued to date and meeting this category is more arbitrary. However, you can begin by considering who is in your household. By definition, a member of the household can include someone who shares the individual’s principal residence — this could be a friend, relative, partner, or roommate. The listing of “adverse financial consequences,” meanwhile, includes but is not limited to being quarantined, furloughed, laid off or a reduction of work hours, having a lack of childcare or a reduction in pay or self-employment income.

In summation, there are some planning opportunities that can be generated by those who qualify for a CRD, and McClintock & Associates stands ready to advise our clients on this particular piece of the CARES Act, as well as any other questions that you may have. If you would like to make an appointment to discuss this article, please reach out to us here.

Questions about CRDs or other tax-related items?

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