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The CARES Act provides for special federal tax treatment for “coronavirus-related distributions” from most types of tax-qualified retirement plans and IRAs. The distribution must be made between January 1, 2020 and December 31, 2020 to an individual diagnosed with the virus, caring for a spouse or dependent diagnosed with the virus, or experiencing adverse financial consequences stemming from certain pandemic-related situations (such as quarantine). Income related to those distributions is subject to federal income tax ratably over three years, rather than all at once, unless the individual elects not to have the ratable inclusion apply. However, this favorable tax treatment may not apply for state and local tax purposes.
Read our full legal alert here.