Published October 20, 2020

What You Need to Know About Retirement Plan Distribution and Loan Relief Under the CARES Act

Amid the pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide “fast and direct economic assistance for American workers and families, small businesses, and [to preserve] jobs for American industries.” The CARES Act also affords relief that relaxes rules associated with distributions and loans from retirement plans, such as 401(k) and 403(b) plans. These modifications, outlined in Section 2202 of the Act, expand options and provide favorable tax relief for coronavirus-related distributions for qualified individuals.

Qualified individuals

According to Section 2202, someone is a qualified individual if he or she (or his/her spouse) has tested positive for COVID-19; has suffered adverse financial consequences as a result of being quarantined, furloughed, or laid off; has had hours reduced; has been unable to work due to lack of child care; or has had to close or reduce the hours of a business he or she owns or operates.


Section 2202 introduces several options meant to ease the burden that qualified individuals impacted by COVID-19 are facing. Among these are:

  • The 10% additional tax on early distributions does not apply to coronavirus-related distributions.
  • Distributions will be included in income taxes spread over three years (a $3,000 distribution is reported as $1,000 in 2020, 2021, and 2022). This tax treatment is applicable regardless of whether the individual’s employer treats the distributions as coronavirus-related or not.
  • Distributions may be repaid within three years of the distribution date. If the full amount is repaid, federal income taxes will not be owed on the amount of the distribution.


Section 2022 also provides repayment relief for qualified individuals with outstanding loans from eligible retirement plans. For loans outstanding after March 27, 2020, if a repayment is due from March 27, 2020, to December 31, 2020, the repayment may be delayed up to one year under the plan. Payments after the suspension period will be adjusted to reflect the delay and any accrued interest occurring during that time.

What this means for plan sponsors

It is optional for a plan sponsor to adopt the distribution and loan provisions of Section 2022. The plan sponsor can also decide to what extent to amend its plan. As such, it may choose to allow coronavirus-related distributions, but not amend its plan for the loan provisions. It may also choose to allow for loan provisions, but not amend its plan for the distribution provisions. A plan sponsor may also rely on an individual’s certification that he or she meets the conditions for classification as a qualified individual, unless the plan sponsor has actual knowledge to the contrary. Distribution repayments are to be treated the same as rollover contributions. If a plan traditionally does not accept rollover contributions, it is not required to accept the repayment of coronavirus-related distributions. A plan sponsor also need not amend its plan to allow for rollover contributions.

If you need assistance with CARES Act provisions and relief related to retirement plans or have questions related to COVID-19, visit PYA’s COVID-19 hub, or contact a PYA executive below at (800) 270-9629.

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