In March, President Trump signed into law H.R. 748 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The most publicized benefit of the CARES Act is the direct payment provision to many Americans 1. However, for some individuals facing mounting financial pressure in the midst of the coronavirus pandemic, additional provisions of the Act offer meaningful tax savings.
Ordinarily, an individual younger than age 59 ½ who takes a withdrawal from a qualified retirement plan (Traditional or Rollover IRA) faces an early withdrawal tax penalty of ten percent. The CARES Act provides some relief for individuals directly affected by COVID-19, by allowing Coronavirus-Related Distributions. In particular, if you or your spouse has been diagnosed with COVID-19, withdrawals of up to $100,000 from qualified retirement plans are not subject to the usual ten percent penalty 2.
More broadly, the CARES Act extends the definition of Coronavirus-Related Distributions to anyone who faces “adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced…or…being unable to work due to lack of childcare.” What’s more, the Act leaves an open-ended provision that suggests this waiver may be extended for “other factors as determined by the Secretary of the Treasury.”3
If you are facing financial hardship because of the coronavirus and are considering an early withdrawal from a qualified retirement plan, talk to your financial adviser about options that may be available to you under the CARES Act.
1 H.R. 748 Sec: 2020 https://www.congress.gov/bill/116th-congress/house-bill/748
2,3 H.R. 748 Sec: 2202 (a)(4)(A) https://www.congress.gov/bill/116th-congress/house-bill/748