The Internal Revenue Service (IRS) has made it possible for Americans affected by COVID-19 to withdraw money from their retirement accounts without penalties, under provisions made to the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The CARES Act was created to support Americans dealing with financial struggles caused by the pandemic. To those individuals who have retirement accounts, the CARES Act has made it easier to withdraw money—and the most recent changes will help even more. According to the IRS, eligibility to make retirement account withdrawals has been expanded to take into account additional factors such as reductions in pay, rescissions of job offers and delayed start dates. It also allows spouses or household members to take these distributions if someone in the household is affected.
What you can do
The CARES Act lets you withdraw up to $100,000 from your retirement accounts, including 401(k) plans and individual retirement accounts this year without having to pay an early withdrawal penalty, which is normally 10%. If the money is put back into your retirement account within three years, you can avoid paying taxes* on the funds withdrawn.
The IRS says employers can choose whether to implement these coronavirus-related distribution and loan rules, but qualified individuals can claim the tax benefits of coronavirus-related distribution rules* even if plan provisions aren’t changed. If you have a retirement plan through your employer, speak with the provider first to see if they’re accepting the CARES Act provisions for COVID-19-related hardships.
While financial experts would normally advise against taking money out of your retirement accounts, the financial hardships caused by the pandemic are changing the rules in an effort to help people pay their bills. Visit the IRS website for more information related to retirement plans and relief for taxpayers affected by COVID-19.
*Consult a qualified tax professional for specific tax advice.