Coronavirus (COVID-19): CARES Act allows penalty-free distributions from retirement accounts up to $100,000

Typically, withdraws from retirement accounts by individuals younger than 59 ½ years old are subject to a 10% penalty.  However, through the CARES Act, the recent $2 trillion dollar coronavirus relief package passed by Congress, Coronavirus Related Distributions (CRD) of up to $100,000 can be made from retirement accounts such as IRA and 401(k) accounts.  In order to eligible for a penalty-free withdraw, a person must have:

  • Contracted Coronavirus (COVID-19) themselves;
  • Their spouse or dependent has contracted Coronavirus (COVID-19);
  • Lost a job, been furloughed or otherwise suffered a heavy financial burden because of Coronavirus (COVID-19) which includes a loss of childcare.

While income taxes must be paid on a Coronavirus Related Distribution, the CARES Act allows those income taxes can be paid over a three (3) year period.  In addition, individuals have three (3) years from the date of the Coronavirus Related Distribution to pay back their IRA or employer-sponsored retirement plan without having to follow the IRS rules regarding the allowable amount of annual contributions.  Importantly, however, individuals are not required to recontribute those funds if they so choose.

Finally, the CARES Act has increased the available 401(k) loan amount to the lesser of 100% of the vested balance in the account or $100,000.  Also, those individual with loan repayments due between March 27, 2020 and December 31, 2020 can elect to delay them for one (1) year; however, be cognizant that interest will continue to accrue during that time period.

For more information

This update was written by Gregory N. Hoffman and Rui P. Alves. For questions or additional information about how the CARES Act impacts your financial situation, please contact Greg or Rui at 401.273.7171 for assistance during these uncertain times.

Barton Gilman provides experienced and innovative legal advice on every facet of small business and nonprofit formation, governance, financing and operations. We regularly assist our clients with employment matters, contracts, compliance with state and federal statutes, trademark and intellectual property, bylaws and policies, and liability claims.