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What The CARES Act Says About Taking Out Retirement Plan Money


Congress passes and the President signs a record economic stimulus law.  

Weighing in at nearly 900-pages, hailing from D.C, and just pulled from the government acronym generator, The Coronavirus Aid, Relief, and Economic Security Act, AKA…The CARES Act.


We already looked at what most people care about.  The payments.  Eligibility.  How much.  When do you get cash.  Check out the video for those details.


We know the most you’re getting is $1,200 per person or $2,400 for married couples.  And $500 for each kid under 17.


Come on, we know that’s just “buying time” money.  If you’re in jam, that’ll keep a roof over your head and food on the table…for weeks…not months.


And if you’ve been laid off, lost work, or business has just dried up…you need a Plan B.


And then you remember,  you’ve been socking away money in your 401k for years.  Or maybe it’s your IRA.  


The good news…you can take a Coronavirus Related Distribution of up to $100,000.  Of course, you’ve got to have that much in your account.  But generally, you can’t just take money out of your 401k plan on a whim while you’re still working there.


You’d still have to pay tax on the money you take out, but the tax is automatically spread out over the next 3-years.


No under-age penalty.  The usual 10% penalty for distributions under age 59.5 disappears.


And you have up to 3-years to roll any of it back into the 401k or IRA.  If things pick up and you’ve got the cash, you can get it back into the account.


Here’s how you qualify:


You or your spouse or dependent diagnosed with COVID-19.


You suffered financially because of the virus.


You can’t work due to lack of childcare.


Your business has closed or cut back hours.


Or any other reason the IRS says is OK.  It appears they’re purposefully being broad on this.  To prove you’ve been impacted, you self-certify.  Kind of like doing your taxes.  It’s the honor system.


Maybe you don’t like the idea of an outright taxable distribution. Many 401k plans have loan options.  The maximum loan amount doubles to $100,000.  And the rule that caps a loan amount at 50% of your vested balance, increases to 100%.   


Normally, if you had a vested balance of $40,000, you could only borrow half or $20,000.  Now you could borrow the full forty if you qualify for a Coronavirus related loan.


And Required Minimum Distributions are waived for 2020.  You may recall that when you hit age 70.5, you have to start taking money out of your IRA, 401k, and similar plans whether you want to or not.  Uncle Sam wants his piece.  Not this year.  That’s true for inherited IRAs as well.  You can always take the money if you’d like to, but you’re not required to.


And a quirky bonus if you happened to turn 70.5 in 2019 and chose to delay your first RMD to April 1st…well, game, set…you don’t have to take that one…and match, because the second RMD you’d normally take this year is waived as well.


If you already took an RMD this year just because you had to, there may be some ways to get it rolled back.  Check with your tax or financial professional for guidance on that or anything you’re thinking about doing.


Unless I happen to be your financial advisor, don’t take specific advice from some guy on a website or social media who doesn’t know your unique situation.


Stay healthy my friends.