The “Special Rules for Loans and Distributions from IRAs and Qualified Plans” is one major aspect of the CARES Act that has garnered little attention.

You may withdraw up to $100,000 from all qualified plans in which you participate from January 1, 2020 to December 31, 2020 without the 10% penalty for early withdrawal if you are under 59½ if any of the following circumstances occurs:

  1. You are diagnosed with SARS-COV2 or COVID-19 by a test approved by the CDC
  2. A spouse or a dependent is diagnosed with same
  3. You experience adverse financial consequences as a result of the following:
    1. Quarantined
    2. Furloughed, laid off, or having work hours reduced due to such virus or disease (as defined above)
    3. Unable to work due to a lack of child-care
    4. Closing or reduced hours of business owned or operated by the individual due to COVID-19
    5. Other factors determined by the IRS (Rules and Regulations not yet written on this)

If you do not recontribute a coronavirus related distribution to a qualified plan within 3 years, that income would be subject to income tax over a three-year period. The distribution is also exempt from the mandatory 20% tax withholding that ordinarily applies. Furthermore, deferrals will not cease unless you contact your plan administrator.

You may also borrow up to $100,000 of a vested retirement account balance. For any loans outstanding on March 27, 2020 and before September 23, 2020, payments will be delayed for one year, however interest continues to accrue during the time your payments are not made.

Next up – What to know about RMDs or Required Minimum Distributions for 2020