Taxpayers who need cash as a result of the Corona Virus outbreak and have eligible retirement accounts (IRAs, 401Ks, qualified annuities and some deferred compensation plans), have some options thanks to the new CARES Act.
First, The CARES Act allows for penalty free withdrawals for up to $100,000 from those accounts by December 31, 2020 for certain individuals impacted by the Corona virus. To qualify, you or your spouse or dependent must have been diagnosed with the virus, or you must have experienced adverse financial consequence due to quarantine, furlough, lay-off or reduced hours, or been unable to work due to lack of child care.
Normally, non-qualified early withdrawals are subject to tax and a 10% penalty. Thanks to the CARES Act, the tax on these withdrawals can be spread over a 3-year period. Furthermore, you will have the opportunity to recontribute your withdrawal over 3 years without affecting annual retirement caps.
Second, the limit on loans from 401K plans have been increased to $100,000 from the existing $50,000 limit. Repayment due dates that fall prior to December 31, 2020, are extended for 1 year.
Third, those who would normally be required to take RMDs from a 401K, 403(a), 403(b), 457(b) or IRA, have the option of skipping their 2020 RMD.
By Honorine Campisi, CPA