IRS Expanding Criteria to withdraw funds from IRAs and Qualified plans update | Ed Slott and Company, LLC

IRS Expanding Criteria to withdraw funds from IRAs and Qualified plans update

Has the IRS expanded the rules for those effected by COVID as this article implies?

"that it has expanded eligibility to "take into account additional factors such as reductions in pay, rescissions of job offers, and delayed start dates."

The updated criteria, part of the CARES Act, also allows spouses or household members to take these distributions if someone in the home was affected.

So, how will the IRS monitor this? Or, is it based on trust or an audit?

It's mostly on the honor system as plan custodians are allowed to accept the certification from the participant that they qualify. They cannot even ask additional questions of the participant, but could refuse a distribution if they already knew of contrary circumstances. That said, plans do not have to offer CRDs.  Finally, note that if a participant is entitled to a distribution for other reasons and the plan does not offer CRDs, the participant can treat the distribution as a CRD.

This is helpful Alan. Thank you. My calls to a few IRA custodians have indicated they are taking the don't ask, but tell approach. That is, they'll send the distribution, but they'll code the 1099 as they normally would and let the taxpayer report it as they please. Which makes sense for them.On a related topic, do you know anything about how the section 2202 distributions will impact existing 72t arrangements? Will taking a lump sum CARES Act dist blow up my 72t distribution plan?

No. A CRD will be ignored with respect to the 72t plan. If your 72t IRA balance is under 100k and you qualify for a CRD of 100k, then you could drain that IRA account and your plan would end without penalty since the balance will be 0. 

Roger that. Thank you Alan!


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