Distributions from Retirement Funds under the CARES Act
The Coronavirus Aid, Relief, and Economic Security Act or CARES Act eliminates the early distribution penalty on withdrawals from retirement plans under certain circumstances. Typically, if an individual withdraws funds from a qualified retirement plan before age 59 ½ (or 55 in some circumstances), the individual must pay taxes on the income received plus 10% of the amount withdrawn as a penalty fee. The CARES Act eliminates the 10% penalty under certain circumstances depending on whether an individual qualifies, the type of retirement account, and the details of the distribution.
- An individual who experiences negative financial consequence due to Covid-19 or SARS–CoV–2 such as the following:
- Being laid off
- Being furloughed
- Having work hours reduced
- Being unable to work due to lack of childcare
- Business owners and operators who close or reduce hours of a business
- Other factors to be determined by the Secretary of Treasury
- An individual, their spouse, or a dependent who is diagnosed with Covid-19 or SARS–CoV–2 by a CDC-approved test
What Type Of Retirement Plans Qualify*
- Individual Retirement Accounts (IRAs)
- Individual Retirement Annuities
- Qualified Trusts (some pensions, and more)
- Some 457(b)s
*Check with your plan administrator to confirm your retirement asset qualifies.
What Are The Distribution Details
- $100,000 or less
- After January 1, 2020, and before December 31, 2020
- To an individual (not a business or to two people jointly)
What Are The Tax Ramifications?
- Eliminates the 10% early distribution penalty on withdrawals
- The tax liability for the distribution will be paid over a three (3)-year period instead of paying all of the tax liability in 2021 (unless the individual selects to pay it sooner)
- Individuals can re-contribute the amount to a retirement account within three (3) years to avoid all tax liability for the distribution
Please contact the skilled attorneys at Bruning & Associates, P.C. at (815) 455-300 if you have questions regarding a withdrawal from your retirement account due to COVID-19.
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