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Additional Covid-19 Relief: Early Retirement Account Withdrawals

Have you been impacted financially due to the COVID-19 pandemic?  Part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed back in March allows eligible taxpayers to withdraw up to $100,000 from certain retirement plans with favorable tax treatment. According to a recent IRS news release, this relief includes IRAs, 401(k), 403(b), profit-sharing plans, and other retirement plans.

Coronavirus-related withdrawals:

  • May be included in taxable income either over three years (one-third each year) or in the year taken, at the individual’s option
  • Are not subject to the 10% additional tax penalty on early distributions that would otherwise apply to withdrawals taken before age 59 ½
  • Are not subject to mandatory tax withholding
  • May be repaid to an IRA or workplace retirement plan within 3 years

If an individual’s workplace retirement plan permits, they can borrow up to $100,000 from that plan until September 22, 2020.  Loans are not available from an IRA.

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Certain individuals may qualify to have any plan loan repayments due between March 27, 2020 and December 31,2020 suspended for up to one year. Keep in mind that a suspended loan payment will remain subject to interest and the term of the loan will likely be extended to account for the suspension period.

Who is eligible?

To be considered eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if the individual, his/her spouse, or dependent:

  • has been diagnosed with COVID-19 by a test approved by the Center for Disease Control and Prevention
  • experiences adverse financial consequences resulting from:
    • being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare, receiving a pay reduction (including self-employment income), or having a job offer rescinded or pushed back, due to COVID-19
    • Closing or reducing hours of a business owned or operated by any member living in the individual’s household, due to COVID-19

I qualify for this COVID-19 relief.  Should I take it?

Just because you may qualify to make an early withdrawal does not necessarily mean you should. With stock prices at rock bottom, choosing to withdraw funds will only cement your losses. It is better to exhaust all other resources before deciding to dip into your retirement funds. If you find yourself in a situation where this seems like your only option, don’t hesitate to contact a Henry+Horne professional adviser.

Christopher Cluff