The Coronavirus Aid, Relief and Economic Security (CARES) Act provides qualified retirement plan distribution relief for those who need to withdraw funds from certain retirement accounts.
Waiver of the 10% Early Withdrawal Penalty
Pursuant to the CARES Act, the 10% early withdrawal penalty is being waived for coronavirus-related retirement distributions, up to an aggregate total of $100,000 from all eligible plans during the 2020 tax year.
- You are unable to work due to childcare responsibilities.
- Either you, your spouse, or one of your dependents was diagnosed with COVID-19.
- You have experienced financial hardship from being quarantined, furloughed, laid off, or having work hours reduced due to the pandemic.
- You own or operate a business, and had to close or reduce hours due to the pandemic.
- You have experienced an adverse financial consequence due to other factors as provided in guidance issued by the IRS.
Repayment of the Funds over a Three-Year Period
Qualified individuals can repay, tax-free, 2020 withdrawals to an IRA or company plan if the funds are no longer needed. Repayment must be made within three years of the date the money was received. If you have already paid taxes on a withdrawal that you later decide to repay, you can file an amended tax return to recover the taxes paid.
Payment of the Tax over Three Years
Taxpayers have the option to pay the federal tax associated with the distribution over a three-year period beginning with tax year 2020.
The decision to withdraw funds from a retirement account is never an easy one. ClarkSilva is here to help. For assistance, please reach out to us via email at firstname.lastname@example.org, or give us a call at 401-702-0070.