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Withdrawing Retirement Funds During COVID-19

| July 29, 2020
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The Internal Revenue Service (IRS) announced it has expanded retirement fund withdrawal eligibility to "take into account additional factors such as reductions in pay, rescissions of a job offer, and delayed start dates."  The updated criteria, part of the CARES Act, also allows spouses or household members to take these distributions if someone in the home was affected.1 For many Americans feeling an economic hardship due to COVID-19, this makes it is easier to access retirement account money when you need it most.

How this change can help if you’re scrambling to pay bills:

  • No fees assessed: Investors of any age can withdraw as much as $100,000 from 401(k) plans and individual retirement accounts this year without paying the typical early withdrawal penalty of 10%.
  • Time to return the funds: The money you take out is still taxable, but you’re given three years to pay them.
  • Lifestyle changes mean you can reinvest: The new law also indicates that should your situation change you have three years to redeposit the funds back into your retirement account as a rollover contribution.

Be aware that not everyone is afforded this benefit. Under Notice 2020-50, the IRS stipulates you must meet specific criteria to be eligible. Qualifications for individuals, spouses and dependents include:

A diagnosis with COVID-19 via an approved test from the CDC

Or

Experiencing adverse financial consequences from:

  • Being quarantined
  • Being unable to work due to lack of childcare
  • Being furloughed or laid off or having a reduction in work hours
  • Closing a business or reducing business hours
  • Having a job offer rescinded or a start date delayed

Rules are changing and lifestyles are changing for everyone because of COVID-19. Understanding the changes and mandates that are being made can be overwhelming so talking with your financial planner will ensure that you and your retirement plans are secure. If you have questions, we are ready to talk so give us a call today.

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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results.  Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.

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[1] https://www.forbes.com/sites/ashleaebeling/2020/06/19/irs-expands-eligibility-for-ira--401k-loans--distributions-in-covid-19-guidance/#2e0c8406d4e4

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