Two Sides of the Coin
Day by day, some business owners are steadily becoming more confident in reopening their brick-and-mortar businesses. Through social distancing, outdoor dining, and limiting capacity, this is an effort to get back to normalcy. This is good news for workers, however, that’s one side of the coin.
The flip side to it is that the seasoned employees are still concerned. Retirement is right around the corner for them and workplace veterans are struggling in the midst of the pandemic. However, an unlikely ally comes in favor of the soon-to-be retirees: the IRS.
With the COVID-19 pandemic being present, the IRS is expanding eligibility for 401K and Individual Retirement Account (IRA) loans and distributions. The CARES Act passed in March as a $2 trillion stimulus package and it allows flexibility to withdraw large amounts in retirement accounts.
Recently, the IRS Notice 2020-50 has made it clear for people who are struggling financially during the current pandemic. Also, this is for employers who are inquiring about the updated requirements. According to Forbes, “There’s a sample letter employers can ask employees to sign to certify that they’re eligible.”
Who’s Getting the Benefits?
Simply put, this serves as a safety net for individuals who’s retirement plans were altered due to COVID-19. The purpose of the IRS Notice serves as a guide to clarify the CARES Act regarding eligible individuals for retirement plans. It states the following regarding eligibility for retirement. First, the guidance in this notice is to assist employers, plan administrators, trustees, custodians, and qualified individuals in the CARES Act.
So far, manufacturing and health care workers are the ones who are using CARES distributions the most. Under the CARES ACT, eligible participants can take $100,000 as a distribution in the calendar year 2020. Also, the normal 10% early withdrawal penalty for folks under 59 1/2 is waived.
Furthermore, those individuals still owe income taxes on the money they take out, but they are allowed three years to pay the taxes. This is a temporary win for seasoned employees and employers.