Special Distributions of Qualified Retirement Plans and IRAs Due to COVID-19
The Puerto Rico Treasury Department (the Department) has determined that, for purposes of the Special Disaster Distributions set out in CC RI 20-09, any expenses incurred to remedy losses or damages suffered and extraordinary and unforeseen expenses to cover basic needs as a result of this emergency, including loss of income due to the stay-at-home order issued by the Puerto Rico Governor (the Governor), will be considered as Eligible Expenses. Therefore, a distribution that meets the requirements set out in CC RI 20-09 and is used to cover the costs indicated above, related to the COVID-19 emergency, will be considered a Special Disaster Distribution. This determination only applies to residents of Puerto Rico and its 78 municipalities.
In order to receive the Special Distribution and as part of the application process, the Eligible Individual must submit, personally, by mail or electronically, to the employer holding the Retirement Plan or the management service provider for the plan, or, in the case of an IRA, to the financial institution or insurer holding the account, an affidavit that includes the following:
• Name and postal address of the Eligible Individual.
• Physical address of the Eligible Individual's primary residence as of the date of application.
• Certification that the individual is a resident of Puerto Rico at the time of distribution and will continue to be a resident of Puerto Rico throughout the calendar year 2020.
• Certification that the requested quantity does not exceed the limit provided in the circular letter issued by the Department of Finance.
• The amount of the distribution requested will be to remedy losses or damages suffered and extraordinary and unforeseen expenses to cover basic needs as a result of the emergency declared by COVID-19, including the loss of income due to the stay-at-home order issued by the Governor.
• Certification that the individual has not received Special Disaster Distributions from other Retirement Plans or IRAs and that having received other Special Disaster Distributions, the individual must disclose the date of distribution, amount received, and amount retained, if any.
• Certification that the individual has not received Special Disaster Distributions exempt from withholding tax on the revenue contribution and that having received or requested other exempt Special Disaster Distributions, the individual must disclose the date of the distribution or request and the amount of such.
• The administrator of the Withdrawal Plan or IRA trustee who receives the affidavit from the requesting individual is not required to validate or verify that the need for the money from such distribution will be used to remedy losses or damages suffered and extraordinary and unforeseen expenses to cover basic needs as a result of the emergency declared by COVID-19, including the loss of income due to the stay-at-home order issued by the Governor.
The distributed amount of a Retirement Plan and the withholding must be reported to the Eligible Individual and to the Department on Form 480.7C "Information Statement – Retirement Plans and Annuities".
In the case of Special Disaster Distributions of an IRA, the amount of the distribution and the contribution withheld at source must be reported to the Eligible Individual and to the Department on Form 480.7 "Information Statement – Retirement Account Individual". These information statements must correspond to the 2020 tax year and must be filed electronically with the Department no later than March 1, 2021. Any other distributions made during the year 2020, other than considered a Special Distribution, must be included.
Total distributions and other payments completed before February 20, 2020, or after June 30, 2020, will not be considered Special Distributions. In addition, distributions made during the Eligible Period exceeding the $100,000 limit, as well as periodic annuities and payments, as defined in Section 1031.02(a)(13)(D) of the Code, are not subject to or eligible at the 10% contribution rate, and both will remain subject to the ordinary rules set out in the Code and Regulations.
As an example, Individual (A) makes a $120,000 distribution of his IRA on May 9, 2020. In this case, the first $10,000 will be exempt from income contribution, the following $90,000 will be subject to the special rate of 10%, and the remaining $20,000, because it is a distribution that exceeds the $100,000 limit, will be subject to the ordinary rules of penalties set out in Section 1081.02 of the Code.
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