05 Jan Did we qualify for a coronavirus-related retirement distribution?

Q. During the shutdown, my spouse had some of her vacation cancelled and was told to work. She was never given back some of the leave days she lost. I had an offer for a second job rescinded. Although we are worse off, our incomes will still be around the same this year. Would we still qualify for a coronavirus-related distribution from our retirement plans?
— Wondering

A. Thanks for your question.

Let’s first note that the new stimulus package didn’t extend coronavirus-related distributions into 2021, so if you didn’t take the distributions before the end of 2020, the provisions wouldn’t apply.

But some think Congress, under a new administration, could further extend the provisions. Just not yet.

The first stimulus package — the CARES Act — allowed qualified individuals to withdraw up to $100,000 from their eligible retirement plans between Jan. 1, 2020 and the end of the year, said Charles Pawlik, a certified financial planner and chartered financial analyst with Beacon Trust in Morristown.

He said qualified individuals are eligible if anyone in their household was diagnosed with COVID-19 or if they experienced `adverse financial consequences’ related to the virus.

“These withdrawals will not result in the 10% early withdrawal penalty, but they will be taxable as income,” Pawlik said. “The income can be reported over a three-year period, and if the withdrawal is refunded to the qualified plan within the three-year period, the individual would be eligible to amend the returns and receive a reimbursement on the tax paid.”

The definition of “adverse financial consequences” includes the following:

• Being quarantined;
• Being furloughed or laid off;
• Having work hours reduced;
• Being unable to work due to lack of child care;
• Closing or reducing hours of a business owned or operated by the individual; or
• Other factors as determined by the Secretary of the Treasury, such as a reduction in pay or self-employment income, rescission of a job offer, delayed start date for a job and other items.

“Given the definition of adverse financial consequences and their broad nature, you and your wife would be eligible as qualified individuals who are each eligible to take coronavirus-related distributions,” he said.

Your job offer being rescinded is considered an adverse financial consequence to you, and because the Treasury Department has stipulated that an adverse financial consequence happening to a spouse or other member of the individual’s household is also considered an adverse financial hardship, your wife would also have the ability to take a coronavirus-related distribution from her qualified retirement accounts, he said.

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This story was originally published on Jan. 5, 2020.

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