To withdraw, or not to withdraw?

That question is weighing upon the minds of many during this time of financial uncertainty.

Fortunately, the CARES Act is helping many like you by relaxing some rules connected with your retirement fund.

Early Distributions from Retirement Accounts

The relaxed restrictions we’re about to share do not apply to all tax-advantaged retirement account holders. You are eligible for the CARES Act provisions only if COVID affected you personally, such as:

  • Being diagnosed with COVID-19
  • Having a spouse or dependent diagnosed with COVID-19
  • Experiencing a layoff, furlough, reduction in hours, or inability to work due to COVID-19 or lack of childcare because of COVID-19
  • Have had a job offer rescinded or a job start date delayed due to COVID-19
  • Experiencing adverse financial consequences due to an individual or the individual’s spouse’s finances being affected due to COVID-19
  • Closing or reducing hours of a business owned or operated by an individual or their spouse due to COVID-19

We recommend asking your plan sponsor first to see if your specific circumstances render you eligible.

So if you qualify, why might this be a viable option for you?

During the calendar year 2020, participants in certain tax-advantaged retirement plans — including 401(k)s, 403(b)s, 457s, and Traditional IRAs — can take an early distribution of up to $100,000 (totaled from all accounts, per person) without the 10% penalty tax imposed on most retirement accounts.

Additionally, the 20% withholding requirement is suspended for early distributions from 401ks. But don’t be fooled – taxes will still be owed for these withdrawals so budget your expenses appropriately and plan ahead!

You will also have the ability to redeposit the withdrawn money for 3 years.

Retirement Loans

The legal loan limit is increased under the CARES Act. If you take out a loan between March 27, 2020 and September 23, 2020, retirement account owners can borrow up to $100,000 or 100% of the account’s vested balance, whichever is less.

Borrowers will have up to 5 years to repay the loan beginning in 2021. But again, bear in mind that the loan will continue to accrue interest in 2020.

Should You Dip Into Your Retirement Fund?

While the new regulations under the CARES Act allow for greater financial flexibility, don’t assume that withdrawing money from your retirement fund is a consequence-free option.

Be shrewd. If you are in desperate need of money, we advise that you only withdraw the amount that you need, so don’t splurge!

If you’d like more easy ways you can save money during a pandemic, click here. The Alfano & Company team would love to assist you with tax planning to increase your savings now and in the years to come! So click here to set up your free 30-minute consultation with David Alfano.