Normally, the tax law restricts access to retirement funds for non-retirement purposes. Some major changes that will free up cash for current expenses during the COVID-19 pandemic are the waiver of certain penalties for withdrawing from an IRA or 401(k) distribution and an opportunity to take enhanced plan loans.
The CARES Act, allows for the following:
- For qualified COVID-19 distributions, an individual can withdrawal funds (up to $100,000) from a retirement account free of the 10% early withdrawal penalty and can spread the taxable portion on that distribution over a three year period.
- Any qualified COVID-19 withdrawal will not be taxable if it is recontributed within 3 years of the date of distribution.
- Increases the maximum loan amount for COVID-19 purposes to $100,000.