Since the Coronavirus, Aid, Relief and Economic (CARES) Act was passed on March 27, 2020, we have received numerous questions in regards to the impact on retirement plans. We have addressed some of the most common questions below.
May plan participants impacted by COVID-19 access their retirement funds?
Yes, certain participants may withdraw, penalty free, up to $100,000 between January 1, 2020 and December 31, 2020.
Who is eligible for these withdrawals?
To be eligible to make such a withdrawal, the individual participant, or his or her spouse or dependent, must have been diagnosed with COVID-19, or the individual suffered adverse financial consequences due to COVID-19 (furlough, reduction in hours, unable to work due to childcare, loss of business, etc.).
Does a participant who receives a COVID-19 distribution need to pay all of the taxes in the 2020 tax year?
No, the participant may either pay all of the tax applicable to the 2020 taxable year or spread it out evenly (33.33% per year) over 3 years.
Will Sentinel issue only one 1099R for a COVID-19 distribution?
Yes. It is the participant's responsibility to spread the tax on their individual taxes. The participant’s election does not impact the plan’s reporting on Form 1099-R.
Can a participant who receives a COVID-19 distribution repay the amount into a qualified retirement plan?
Yes, the participant has three years from the day after the distribution was received to repay the amount into a qualified retirement plan (or any other plan or IRA that can accept rollovers). The distribution will be taxable if it is not repaid, but it can be repaid over a three-year period, unless otherwise elected.
May a terminated participant take a COVID withdrawal?
A terminated participant may take a COVID distribution, but may not take a loan.
Does the plan sponsor need to verify whether an individual qualifies for a COVID-19 withdrawal or loan?
No, the plan sponsor may rely on a participant’s certification for eligibility, unless the plan sponsor has actual knowledge to the contrary.
Does my plan have to permit COVID distributions?
If my plan does not wish to permit COVID distributions and/or loans, what should I do?
Contact your Sentinel Plan Consultant to request to opt-out of the special COVID withdrawals.