Part of the emergency legislation related to the COVID pandemic was a way to borrow from your 401(k).
While many plans always allowed for loans, the rules changed slightly to give participants more flexibility.
Here are some frequently asked questions, according to the IRS and benefitnotes.com:
Are Covid-related distrivutions (CRDs) and CR Loan Provisions optional? Both CRDs and CR Loan Provisions are optional, meaning that a plan need not provide for CRDs, higher loan limits, or delayed loan payments. Keep in mind that even before the crisis, your employer did not have to offer loan provisions, so not all do.
Does a spouse’s loss of income trigger eligibility for (CRDs) or Covid-related Loan Provisions? For now, an individual is not considered a “qualified individual” (an individual eligible for CRDs or CR Loan Provisions) due to adverse financial consequences that are attributable to a spouse’s loss of income due to coronavirus-related quarantine, furlough, layoff, reduced hours, inability to work due to lack of child care, or closing of a spouse’s business or reduced hours of a spouse’s business.
If a plan does not offer CRDs, will participants lose out on favorable CRD treatment? If a participant is otherwise able to take a distribution from a plan, but the plan does not provide for CRDs, the participant is still able to claim beneficial CRD treatment (no 10% additional tax, three-year inclusion in income, and ability to repay) if the participant is a “qualified individual.”
(Photo by Stuart Franklin/Getty Images)
Getty Images Source