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Relief Unlikely on Coronavirus Retirement Plan Distribution Snag

Posted on Oct. 16, 2020

Some taxpayers may not be able to take coronavirus-related distributions from their retirement plans because of how the statute is written, but relief from the IRS is unlikely, according to a Treasury official.

A provision in the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) allows distributions from defined contribution plans and IRAs on or after January 1, 2020, and before December 31, 2020, to qualified individuals up to $100,000 in aggregate.

During an October 15 American Law Institute Continuing Legal Education webcast, Weiyen “Ann” Jonas of Fidelity Investments asked if the IRS could provide relief to taxpayers whose distributions are processed on December 31.

In response, Bill Evans of the Treasury Office of Benefits Tax Counsel said the answer probably is no.

“I think generally we would be pretty hesitant to provide relief in situations where the statutory language is clear and there’s not sort of an internal inconsistency that would make it impossible to implement the provision,” Evans said. “There hasn’t been any relief on that issue, and I really wouldn’t particularly anticipate it.”

Evans also pointed out that IRS Notice 2020-50, 2020-28 IRB 1, which provides guidance on coronavirus-related distributions, offers no relief on the December 31 issue.

If Congress were to change the statute through a technical correction, of course “the guidance would track that language,” Evans added.

Jonas said plan sponsors and service providers should encourage taxpayers to make their distribution requests before December 31 to ensure they’ll be processed on time.

Jonas also noted that the coronavirus-related distributions are an optional plan feature and said some plan sponsors that implemented the provision may want to stop offering the distributions because of utilization results or other concerns. She asked if Treasury is concerned that removing the distributions option before December 30 “would be some sort of cutback if the plan were amended and operated in that way.”

Evans said that was a fair question and added that to avoid providing a “roadmap for what might be sort of viewed as a kind of participant-unfriendly result,” he doesn’t anticipate guidance on the matter.

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