Who is eligible to take a coronavirus-related distribution? 

The CARES Act defines a “qualified individual” as: 

  • An individual or an individual’s spouse or dependent diagnosed with the SARS-COV-2 virus or the COVID-19 virus; OR 
  • An individual who has suffered financially as a result of: 
  • Being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare due to COVID-19, OR 
  • Closing or reducing hours of a business owned or operated by the individual due to COVID-19; OR 
  • Other factors as determined by the Treasury Secretary (i.e., there may be other categories of people eligible for a coronavirus-related distribution, as may be outlined in the future by the Treasury). Further guidance will be required to identify other eligible categories, if any. 

Coronavirus-related distributions are also available for beneficiaries of deceased participants and for alternate payees (former spouses) provided they themselves are a “qualified individual” as described above. 

Further, in Notice 2020-50 published on June 19, the IRS, as authorized by the CARES Act, expanded the list of eligible individuals to include a wider group of those who have experienced financial hardships but did not previously qualify for the favorable disbursement terms. Additional eligible individuals include:

  • Those whose pay or self-employment income is reduced due to the pandemic,
  • Those who had a job offer rescinded or had a new job start date delayed due to COVID-19,
  • Those whose spouse or a member of their household has experienced a financial hardship due to:
    • A layoff, furlough, quarantine, reduced hours, reduced pay or self-employment income;
    • Inability to work because of childcare unavailability; or
    • A rescinded job offer or delay in the start date of a new job;
    • Closure or reduction in hours of the business owned or operated by the participant’s spouse or a member of the participant’s household

“Member of the household” is defined in the guidance as someone who shares the qualified individual’s principal residence, which encompasses a broad group of individuals such as a relative, roommate, significant other, or anyone else with whom the individual is sharing a home.

Because this provision applies to distributions made back to January 1, 2020, individuals who have already taken a coronavirus-related withdrawal are also exempt from the 10% early withdrawal penalty.   

Cetera Retirement Plan Specialists is a third-party administrator and may not offer tax, legal or investment advice. Plan sponsors should consult their own tax, legal or investment professionals.