The CARES Act allows for a “penalty-free” coronavirus-related distribution (CRD) through December 30, 2020, of up to $100,000 from traditional IRAs and IRA-based accounts (SEPs, SARSEPs, SIMPLE IRAs), as well as profit-sharing, 401(k), 403(b) and 457(b) plans.
The IRS has expanded the scope of eligibility to request a CRD from a retirement plan. It now includes hardships faced by the account owner’s spouse or primary family member (in a shared residence).
From IRS Notice 2020-50, a qualified individual for purposes of this notice is an individual who:
- is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, "COVID-19"); or
- experiences adverse financial consequences as a result of the individual, the individual's spouse, or a member of the individual's household (that is, someone who shares the individual's principal residence):
- being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
- being unable to work due to lack of childcare due to COVID-19;
- closing or reducing hours of a business that they own or operate due to COVID-19;
- having pay or self-employment income reduced due to COVID-19; or
- having a job offer rescinded or start date for a job delayed due to COVID-19.
While the distribution is penalty-free, it will still be subject to normal income tax rules, as applicable. You may spread the taxes evenly over a three-year period, and you may repay the amount to an IRA or other eligible retirement plan that allows rollover contributions. You have to make the repayment within three years of the date you took the distribution.
The “should I?” part, however, depends on your situation. We help you explore your options in a related article. Read In Need Of Emergency Money? Where To Look. What To Watch Out For.