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Retirement Distribution – Strategies During the COVID Crisis

If you need immediate cash and have a retirement account, help is just around the corner. Congress has greatly enlarged your ability to tap your retirement account without penalty and generous payback terms. For 2020 only, you can take a corona virus-related distribution of 100% of the vested portion of any qualified retirement plan without penalty.

For 2020 only, you can take a corona virus related distribution of 100% of your vested portion from qualified plans up to $100,000. There is no penalty as long as the reason for the withdrawal is due to the corona virus.

  1. If you were diagnosed with SARS-CoV-2 or COVID-19 by a test approved by CDC;
  2. Your spouse or IRS qualified dependent is diagnosed by such test; or
  3. Your finances have been affected as a result of being quarantined, furloughed, laid off, having work hours reduced due to COVID-19, being unable to work because of lack of child care or closing of a business you own due to the disease.

Your retirement plan can rely on your certification that you meet one of the requirements. No further proof is required.

Amount can be repaid into your account up to 3 years from the date of the distribution without triggering income tax or a penalty.

If you cannot or choose not to repay the retirement distribution, then the distribution is subject to regular income tax, but the tax may be paid over a three year period. Again, there is no penalty.

Check with your retirement plan administrator. If the Plan permits it, you can take up to $100,000, instead of the current $50,000 without paying income taxes or a penalty, as long as the loan is taken within 180 days from March 27, 2020.

Required Minimum Distributions (RMDs) for IRAs and defined contribution plans, such as profit sharing and 401(k) plans, are waived for 2020, including the first RMD for individuals that reached age 70½ during 2019. These are waived whether or not the taxpayer has been impacted by the pandemic.  

If you received an RMD for 2020 already, you can roll it back into the account within 60 days to defer paying taxes on the RMD.

This post is intended to just highlight the various rescue programs that may be available to you and is not intended to substitute for professional tax advice. McCarthy Family Law is not a tax or accounting firm. Additionally, there are detailed regulations concerning each person’s eligibility and terms of repayment. Please check with your tax advisor.

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McCarthy Family Law is a full service family law firm that services all family law issues. If you are going through a divorce or have questions about filing for divorce, we are here to assist you. Please call us at 520-623-0341 to explore your options. Turning Stress Into Solutions®.