As the landscape of economic uncertainty continues to unfold, our leaders in Washington have been pushing our legislation at record pace. Their aim, no matter how wobbly, is to find ways to get funds into the hands of those who need it most. With the latest piece of legislation, the CARES Act, Congress has created a way for workers to access their qualified retirement accounts without early withdrawal penalties.
The CARES Act adds a special in-service distribution for coronavirus related reasons:
- You or your spouse is diagnosed with COVID-19 by a test approved by the CDC
- A dependent is diagnosed with the virus
- You experience adverse financial consequences such as being laid off, furloughed, quarantined, reduced work hours, closing of your employer, or being unable to work due to a lack of childcare
The language for who qualifies to make these withdrawals is fairly broad, and I believe it’s been drafted that way on purpose. However, there are also some rules that need to be followed.
- These special distributions are NOT subject to any 10% early withdrawal penalty.
- They can be paid back to your retirement account in one or more contributions at ANY time during the 3-year period that begins the day after you receive funds.
- While you don’t have early withdrawal penalties, these funds are still taxable; however, you have the ability to spread the tax liability over 3 years if needed.
- The maximum withdrawal must not exceed $100,000.
If you are employed and needing additional guidance, you should consult directly with HR or your plan administrator. If you are self-employed or have IRA funds, you should be able to make the withdrawals from your account. It’s important to note that these changes have happened very quickly, so I would encourage anyone who wishes to deploy this strategy to keep good records. It’s very likely that some technology portals for online account access have not been updated to reflect these rules, so you may need to call customer support for assistance. For those who need quick access to cash, this can be a great way to use some of your retirement funds to help you get through this difficult time.
This article originally appeared on www.chelseakrost.com