Special Rules for Using Retirement Funds for Coronavirus Cost

We at Verdeja, De Armas and Trujillo (VDT) have created a COVID-19 Crisis Department to assist you with your financial questions and tax concerns. In accordance with our previous email, we will be providing you with separate emails regarding the different sections of the Cares Act that may be beneficial to you or your organization. Keep in mind, we are trying to summarize relevant information so it is simple to read. Should you have any further questions please do not hesitate in contacting us.

  1. Special Rules for Using Retirement Funds for Coronavirus Costs
    1. What it is: If you are younger than 59½, you are subject to a 10 percent early withdrawal penalty on top of the income tax owed on your withdrawal from your retirement plan. The CARES Act waives the 10 percent penalty for IRAs and defined contribution plans for participants experiencing financial hardship up to $100,000 made on or after January 1st.
    2. Eligibility:
      Coronavirus-related distributions can be taken for the following reasons:
      — You, your spouse or dependent has been diagnosed with COVID-19
      — You’ve experienced adverse financial consequences as a result of being quarantined, furloughed or laid off, or your work hours have been reduced.
      — You’re unable to work because of a lack of child care.
      — You’ve had to close or reduce the hours of a business as a result of the virus.
      — You’ve been financially impacted by other factors determined by the treasury secretary.
    3. Other matters:
      To ease the tax burden, if you pull money from your retirement account, you have up to three years to pay taxes on the withdrawals. You can repay all or a portion of the distribution within three years, and the repayments will not be counted toward the annual contribution limits.
      In addition, Loan limits from retirement plans have been increased from $50,000 to $100,000. The existing rule that loans may not exceed half the vested account balance has been removed. New and existing loan payments can be deferred for a year.
      Finally, you are required by law to take withdrawals from your IRA, SIMPLE IRA, SEP IRA or retirement plan such as a 401(k) once you reach 72 (It was 70½ before 2020). But the CARES Act waives required minimum distribution payments for 2020, including for inherited IRAs.

Once again, should you need clarification on the above or on any other matters related to the CARES Act, please let us know. Thank you.