REPAYING CORONAVIRUS-RELATED DISTRIBUTIONS (CRDS) HOW YOUR CLIENTS MAY CATCH UP BY JODIE NORQUIST, CIP, CHSP; ASCENSUS On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law as the largest relief package in U.S. history. The legislation included multiple provisions that affected retirement and health savings arrangements to help millions of Americans affected by COVID-19. The CARES Act allowed individuals to withdraw up to $100,000 in aggregate from eligible retirement plans and IRAs without paying the 10 percent early distribution penalty tax. The distribution had to have been made on or after Jan. 1, 2020, and before Dec. 31, 2020, by a qualified individual, defined in both the CARES Act and expanded in definition by Notice 2020-50, as someone who was diagnosed with or otherwise adversely affected by COVID-19. If your clients took coronavirus-related distribution (CRDs) in 2020, they still have time to make repayments to their qualified retirement plan or eligible IRA. Because a relatively small number of qualified individuals took CRDs in 2020, you may handle few CRD repayments, but their proper reporting is no less important for their infrequency. Based on a study of retirement plans with 500 employees or less in 2020, Ascensus reported that the percentage of eligible individuals who took CRDs from their retirement plans was low. Other financial services firms also reported to the Congressional Research Office modest usage of CRDs by their clients in 2020. Ascensus reported that 16.6% of employers adopted CRDs, and 4.9% of eligible individuals (i.e., individuals covered by plans that adopted CARES Act provisions) took CRDs. Of those, only 3.2% of those who took CRDs withdrew the maximum allowable amount of $100,000; most CRDs averaged $14,300 in total withdrawals at the end of 2020, according to Ascensus. Reporting CRD Distributions CRDs would have been reported to the IRS for the 2020 tax year by financial organizations in different ways. Like all retirement plan and IRA distributions, CRDs were reported on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. Employers were not required to offer CRDs to plan participants. But if an employer had adopted provisions allowing CRDs, participants who were otherwise subject to the 10% early distribution penalty tax (other than beneficiaries) would have had their distributions reported on Form 1099-R as a code 2, Early distribution, exception applies, or code 1, Early distribution, no Continued on page 24 23 ISSUE 6 | 2022
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