- The CARES Act was passed on March 27, 2020 stemming from the coronavirus (COVID-19) pandemic. The new act affects solo 401k plans in the following ways:
Coronavirus Related Distributions (CRD)
Defined as a solo 401k distribution made between January 1, 2020 and December 30, 2020. In orde to fall under the CRD exception, the individual must meet the following definition:
- an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
- an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.
- The solo 401k participant is responsible for retaining records confirming she meets one of the above requirements.
- The maximum solo 401k distribution amount under the CRD exception is $100,000.
- The CRD can be repaid over three years to the solo 401k or to an IRA.
- The 20 percent federal tax withholding on the solo 401k distribution is not mandatory.