There is only 3 weeks remaining in 2020 and that is all the time you have left to take advantage of the special rules enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act regarding retirement plan withdrawals/loans.
In a nutshell the CARES Act allows IRA owners to withdraw up to $100,000 in 2020 and owe no taxes on that distribution for 3 years. Also, if it is put back into an IRA within those 3 years, no taxes will be owed.
This also applies to certain defined contribution plans, such as a 401k or 403b plan. However, it is optional for employers to adopt these new rules since they would have to amend their plans to accommodate these new changes for withdrawals and loans. So, please check with your plan administrator to see if they have adopted these changes.
You have to be a “qualified” individual to use these new withdrawal/loan rules. You are a qualified individual if:
- You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
- Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
- You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
- You experience adverse financial consequences as a result of being unable to work due to lack of childcare due to SARS-CoV-2 or COVID-19; or
- You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.
Also, if you are under the age of 59 ½, the 10% early withdrawal penalty is waived in 2020.
There will be a new IRS form, Form 8915-E, that will be used to report 2020 CARES Act plan distributions and repayments. Remember, you can spread the distribution over 3 years: 2020, 2021, and 2022. You can also do the same for the repayments if you choose to put the distributions back in to your retirement plan or IRA. If you do repay, you will not be subject to taxes on those distributions.
Please let me know if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
