Official Internal Revenue Service guidelines on Covid-19-related 401 (k) and individual retirement account loans and distributions have been released and expand the list of people eligible for special tax relief. Newly eligible: those who have had a canceled job offer or a delayed start date due to the coronavirus.

The CARES Act, the $ 2 trillion stimulus package passed at the end of March, opened the door for huge sums to be taken from retirement accounts. IRS issued Covid-19 IRA and 401 (k) Loans and Distributions FAQs may’s beginning.

Now IRS Notice 2020-50, Advice for Coronavirus-Related Distributions and Pension Plan Loans Under the CARES Act, is more welcome news for people struggling financially with the Covid-19 pandemic and for employers answering questions about the new rules. There is a sample letter that employers can ask their employees to sign to certify that they are eligible. And there are detailed examples of how the tax treatment works for distributions and re-contributions, as well as a safe haven rule for loan deferrals.

The need is there. Fidelity Investments found that 295,000 (1.2%) of its 401 (k) plan participants received a CARES distribution as of May. The average payout was $ 12,500; over 6,000 took the full $ 100,000. Manufacturing and healthcare workers were by far the biggest users of CARES distributions. Lending activity was also high in May: 17,500 took out a loan under the CARES Act, with an average amount of $ 16,500. And 91,000 participants deferred their loan repayments as permitted by the CARES law.

Under the CARES Act, you can take up to $ 100,000 as a distribution in the 2020 calendar year, and the normal 10% early withdrawal penalty for those under 59 and a half is waived. You will still owe taxes on the money you take out, but you have three years to pay the taxes. If your situation improves, the law says you can deposit the money you withdraw back into your retirement account (or other qualifying retirement account) as a rollover contribution within three years.

The law also increases the amount you can borrow on your 401 (k). Until September 22, 2020, you can borrow 100% of your account balance up to $ 100,000 (less outstanding loans). This is more than the normal limit of $ 50,000. In addition, for outstanding loans, the due date for payments due until December 31, 2020 may be delayed by one year.

The new IRS guidelines reiterate that a person must in fact be a qualified person to obtain favorable tax treatment. In other words, not everyone can attack their 401 (k) or their IRA. You must meet the conditions to be eligible.

Under Notice 2020-50, a qualified person is any person who –

• is diagnosed, or whose spouse or dependent is diagnosed, with the SARS-CoV-2 virus or coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug and Cosmetic Act); or
• suffers unfavorable financial consequences because of the person, his spouse or a member of his household (i.e. a person who shares the principal residence of the person):
• be quarantined, laid off or laid off, or have reduced working hours due to COVID-19;
• being unable to work due to a lack of child care due to COVID-19;
• closing or reducing the hours of operation of a business they own or operate due to COVID-19;
• reduced wages or self-employment income due to COVID-19; or
• have a canceled job offer or the start date of a delayed job due to COVID-19.

Employers can choose whether or not to apply these rules (most choose to do so). If your employer doesn’t, you can still claim the tax benefits when you file your tax return. For more details, there is the Official 19-page guide and the IRS FAQ.

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