Is an individual taking withdrawals under a Series of Substantial Periodic Payments, to avoid a 10% premature distribution penalty, able to pause these payments under the CARES Act?
The CARES Act didn’t offer relief for payments that are a part of a series of substantially equal periodic payments. When RMDs were waived in 2009 in the wake of market instability, the IRS clarified that pausing a series of SEPP payments wasn’t allowed and would trigger a 10% early withdrawal penalty (Notice 2009-82).
On June 19, in Notice 2020-50, the IRS clarified that for individuals receiving 72(t) distributions (Substantially Equal Periodic Payments), receipt of a Coronavirus-Related Distribution (CRD) will not be treated as a modification to the 72(t)-payment stream and thus will not result in a recapture tax.
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.