What if a plan doesn’t allow for a coronavirus-related distribution, can a former participant claim a plan withdrawal as a coronavirus-related distribution to gain its tax-favored treatment?
Yes, the tax treatment of a coronavirus-related distribution is an individual taxpayer reporting issue, not a plan-level issue. It is handled as part of the individual’s income tax return; it doesn’t matter how the plan itself reported the distribution. If the disbursement meets the coronavirus-related distribution requirements, an individual could treat it as a coronavirus-related distribution, thus availing herself or himself of the favorable tax treatment including the 10% pre-mature withdrawal penalty waiver, ability to spread the tax payments over a three-year period, and an option to repay the withdrawal to an IRA or another employer-sponsored plan.
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.