If you’re out of work and need income, you might be considering withdrawing from your retirement savings. Normally, if you withdraw money from traditional Individual Retirement Accounts (IRA) and employer-provided accounts before reaching age 59 ½, you have to pay a 10 percent early withdrawal penalty.
Furthermore, emergency withdrawals from your current employer-provided plans are limited to an amount needed to meet a limited set of approved hardships, like avoiding foreclosure, home repairs after a disaster, or medical expenses.
If the pandemic has had negative effects on your finances, temporary changes to the rules under the CARES Act may give you more flexibility to make an emergency withdrawal from tax-deferred retirement accounts during 2020.
Among other things, the CARES Act eliminates the 10 percent early withdrawal penalty if you are under the age of 591/2. One third of the money you withdraw will be included as income in your taxes for each of the next three years unless you elect otherwise. The CARES Act also allows you to pay back what you withdrew from your accounts if you’re able to do so.
Please note: that this blog discusses withdrawals from retirement plans – not retirement plan loans. You may want to spend some time weighing the risks and benefits to withdrawing money versus taking a loan. Learn more about taking a loan from your retirement accounts
What tax-deferred accounts are affected by the changes?
- A traditional IRA
- An employer-provided retirement plan such as a 401(k) or 403(b) or other types of defined contribution plans.
Please note: that related distribution option. However, you may qualify for a distribution from your plan through other covered financial hardship categories Money received from these other distributions can be treated as coronavirus-related distributions in your tax return, as long as you can prove that you meet the qualifications stated below.
How do you qualify for the exemption?
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NOTICE: This communication and its content are for educational and informative purposes only and should not be used as the basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but not a representation, expressed or implied, as to its accuracy, completeness or correctness and it is not a replacement for the guidance or professional advice of an accountant, certified financial advisor, or otherwise qualified professional. No information available through this communication is intended or should be construed as any advice, recommendation, or endorsement from us as to any legal, tax, investment, or other matters. Nothing in this communication shall be considered a solicitation or offer to buy or sell any security, future, option, or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this communication constitutes investment advice or offers any opinion with respect to the suitability of any security. This information has no regard to the specific investment objectives, financial situation, and particular needs of any specific recipient. We recommend that you never provide a third party with names, account numbers, or other sensitive information unless you are certain that it has a legitimate business purpose.
Links to third-party websites are provided for your convenience only and you access them solely at your own risk. We do not endorse or assume any responsibility for any such third-party sites, information, materials, products, or services. Your access and use of the third-party sites are governed by the terms of use and privacy policies of these third-party sites. You acknowledge and agree that we shall not be liable or responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or related to the use of or reliance on any content, goods, or services available through any third-party website or resource.
* ACCESS LOANS™ products are funded and serviced by Safra National Bank of New York (“SNBNY”).
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