COVID withdrawal

[thepensionmaven]

Accountant is checking as to whether his client could have taken COVID distributions from his SEP as well as from his defined benefit plan.

Distributions both taken prior to 12/31/2021.

Client was talking about taking a plan loan, which we thought never materialized; I can only assume the client had taken a loan prior to September 30th and has not started repaying.

Too late to do anything about it now.

[JOH]

A SEP is just a traditional IRA that accepts employer contribution. Once the funds are in the SEP, it's treated like Traditional IRA funds. I guess I'm confused what the question is regarding the SEP, is it regarding the 10% early withdrawal penalty or something else?

[thepensionmaven]

We were questioning if the participant could have taken a COVID withdrawal from both his SEP and his defined benefit plan.

[JOH]

I guess what i'm saying is that the distribution from the SEP doesn't have to have a designation in order for the client to take funds from the SEP. If the client is 59.5, it doesn't matter if the client took $10,000 because of covid or to buy a new car. If the client is not 59.5 than if the distribution was related to covid, they would not be subject to the 10% penalty. I don't believe that what the client does within his/her SEP/IRA has any role regarding what s/he does in the DB plan.

[Lou S.]

3 hours ago, thepensionmaven said:

We were questioning if the participant could have taken a COVID withdrawal from both his SEP and his defined benefit plan.

It's possible to have taken COVID Withdrawals from multiple COVID eligible sources, however there was an aggregate limit of $100,000 per individual for COVID withdrawals.

The DB would have had to adopt CARES provisions, the participant would have had to be eligible and elected a CARES withdrawal in 2020. The SEP is just a type of IRA so withdrawals taken in 2020 that met the definition of CARES withdrawal could have been COVID related up to $100,000 limit.

If the DB plan allowed participant loans up to another $100,000 potentially could have been taken tough repayment was to have started over a year ago at this point.