CAREs Act and Withdrawing from your IRA

The Coronavirus Aid, Relief and Economic Recovery Act (CAREs Act) includes several important retirement account-related provisions and tax incentives. Some of these changes will afford more flexibility, yet it’s not a “free pass” to withdraw funds from your retirement accounts without consequence.  Here are some of the more common misconceptions.  

#1 I can withdraw up to $100,000 from my retirement account and pay no taxes

  • Provided that you meet one of a few criteria you may take a tax advantaged withdrawal: 
    • you are diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the CDC
    • you or your spouse or dependent is diagnosed; or
    • you experience “adverse financial consequences” on account of: being quarantined; being furloughed or laid off or having work hours reduced; being unable to work due to lack of child care; or closing or reducing hours of a business you owned or operated.
  • What are the tax advantages?
    • If you are under 59 ½ years of age, the normal 10% withdrawal penalty is waved.
    • You may spread out the income tax burden of your distribution over 3 years or pay it back into your retirement account over the same period and pay no taxes.  It’s sort of a tax-free loan to yourself.

#2 I can get these same benefits from my company’s 401(k)

  • The CAREs act does allow companies to provide the above mentioned provisions but does not require them to do so.  The availability of such a program is entirely at the discretion of your employer.  However, it is highly likely that you could simply rollover funds out of your employer sponsored plan should you meet the qualifications listed above, and take a loan from your rollover IRA.  

Required Minimum Distributions (RMDs) in 2020

The act also allows for individuals to wave their 2020 RMDs. This means that if you are normally required to take money out of your IRA, you can simply skip your 2020 distribution. If you have already taken your RMD or delayed your 2019 RMD you may be able to return the funds to your IRA without penalty in certain, specific situations.