Have received a COVID-19 diagnosis;
Have a spouse or dependent who has received a COVID-19 diagnosis;
Has experienced adverse financial consequences as a result of quarantine, furlough, being laid off, or reduced hours because of the disease;
Are unable to work because they lack childcare as a result of the disease
Own a business that has closed or is operating under reduced hours because of the disease; or
Meet some other reason that the IRS decides to say is OK.
Penalty-Free Access to Retirement Savings
When making an "early" withdrawal from a 401(k), 403(b), IRA or another qualified retirement plan, a 10% penalty applies. This is on top of any taxes that may be due. The IRS defines early as before the age of 59.5. Why the half year? Great question...I have no idea and not enough time on my hands (despite a 24/7 quarantine) to try figure it out. There are several instances that qualify for an exemption to this penalty. First time homebuyers, disability and certain medical expenses to name a few. These exemptions waive the 10% penalty only, not taxes due.
Spread any tax liability of this extra income over the next three years: or
- Take three years to return savings (up to the full amount withdrawn) back into the account.
Increase in 401(k) Loan Limits
Some plan sponsors offer the option of taking out a loan on your 401(k) or IRA. There are limits on how much you can withdraw. According to the IRS, the amount was “(1) the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less.”2
Considerations About Withdrawing From Your Retirement Savings
Before making a big financial decision like this, it’s important to work together with your financial advisor. If you or any one you care about needs to talk through your options, please schedule a time to talk with us today. Click here to check our availablity and to schedule a call.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.