TUCSON, Ariz. (KOLD News 13) - The CARES Act makes it easier for people struggling financially during the COVID-19 crisis to make an early withdrawal from their retirement account.
Usually, if you are younger than 59 and make an early withdrawal from your retirement plan, you are subject to a penalty equal to 10 percent of the distribution amount.
However, a provision in the CARES Act allows investors to take penalty-free distributions from IRAs and qualified retirement plans up to $100,000.
In order to be eligible, the coronavirus-related distributions must be made on or after Jan. 1, 2020 and before Dec. 31, 2020.
Distributions will still be subject to regular income tax, but the CARES Act allows the money to be spread out and claimed on your tax return over three years. You can also repay the entire distribution amount within three years and recoup any taxes you paid.
You are eligible to make the penalty-free withdraw if:
- You, your spouse, or dependent has been diagnosed with COVID-19
- You have experienced adverse financial consequences because you have been quarantined, furloughed, laid off, or have had your hours reduced due to COVID-19
- You are unable to work because of a lack of child care due to COVID-19
- You own or operate a business and have had to close or reduce hours due to COVID-19, or
- You have experienced an adverse financial consequence due to other factors as provided in guidance issued by the IRS
The special withdrawal rules apply to eligible retirement plans, which include individual retirement accounts and annuities (IRAs), qualified pension, profit-sharing, or stock bonus plans (including 401(k) (plans), qualified 403(a) annuity plans, 403(b) annuity contracts and custodial accounts, and governmental section 457 deferred compensation plans.
Speak with your financial adviser to see if this is the best option for you.