CARES Act – Withdrawals from Retirement Plans

By: Timothy Lynn

Certain withdrawals from retirement plans are exempt from the 10% tax imposed under Section 72(t) for early withdrawals.

Covered Plans include:
• Individual retirement accounts and individual retirement annuities
• 401(k) plans
• 403(a) plans
• 403(b) plans
• Qualified pension, profit-sharing or stock bonus plans

Withdrawals:
• The maximum amount that may be treated as a coronavirus-related distribution is $100,000.
• Must be made between January 1, 2020 and December 31, 2020.
• The amount withdrawn is not subject to the 10% penalty.
• The amount withdrawn could be taxable income, but the tax burden can be spread over three years (beginning with 2020).
• The income recognition may be avoided by repaying the distribution within 3 years. The qualifying withdrawal may be repaid in one or more installments during the 3 years after the distribution was made. If repayment is made, then the withdrawal is treated as a qualifying rollover contribution.

Note that eligibility is limited to withdrawals made by an individual who:
1. Is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC, or
2. Whose spouse or dependent is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC, or
3. Who experiences adverse financial consequences as a result of:
• being quarantined,
• being furloughed or laid off or having work hours reduced due to such virus or disease,
• being unable to work due to lack of child care due to such virus or disease,
• closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or
• other factors as determined by the Secretary of the Treasury.