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You might be aware that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides a stimulus check to many Americans who may be suffering financially due to COVID-19. Did you know the legislation also includes changes to the requirements for distributions, loans, and other retirement account-related actions for 2020?
If you’re facing financial hardships due to COVID 19, these retirement account provisions in the CARES Act might help you.
COVID-19 Exceptions for Distributions
The legislation allows certain qualified individuals to take an early distribution from their IRA without facing penalties.
Which plans are included?
Retirement plans and IRAs are eligible for this exception.
Who does this apply to?
The exception applies to:
- individuals diagnosed with COVID-19 by a test approved by the CDC
- person who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or suffered reduced working hours or who is unable to work due to lack of childcare
Details of the exception
The 10-percent penalty is waived for premature distributions related to the coronavirus, not to exceed $100,000 from all of your plans.
Amounts distributed may be repaid over a three-year period (beginning with the distribution date). It can be paid to a qualified plan or IRA (doesn’t have to be the same plan from which it was withdrawn). A plan may rely on a certification provided by the participant to demonstrate that they are in one of the applicable categories
If the distribution is not repaid, the taxpayer can spread out the income inclusion over three years, beginning with the year in which the distribution occurred.