As COVID-19 is still at an all-time high, millions of Americans have been hurt financially and are still recovering. If you are out of work and do not have any income coming in, you may be considering withdrawing from your retirement savings. While the $1,200 stimulus check has been distributed to Americans making less than $75,000 and having the option of increased unemployment benefits, there are different opportunities to have financial relief for individuals and families.
The CARES Act provides economic assistance to workers and families, and small businesses to protect and maintain jobs. The CARES Act includes student loan relief, 2020 required minimum distributions (RMD) being canceled, and the option of taking a penalty-free withdrawal for retirement.
Who Qualifies for this Exemption?
Usually, IRA or 401(k) withdrawals taken before age 59 ½ have a 10% withdrawal penalty qualify for this exemption. The CARES Act waives this penalty for up to $100,000, but only if you are qualified. These are who are eligible from COVID-19:
- You, your spouse, or a dependent who has been diagnosed with COVID-19 by a CDC-approved test
- You or your spouse has lost your job or have had disadvantageous financial consequences during COVID-19, such as layoffs, furloughs, rescinded job offer, or reduction in pay
- You are a business and had to close doors or reduce hours
If you are eligible to take a CARES Act withdrawal, employers are not required to allow this, but most employers are making the withdrawal an option. The CARES Act also will enable you to recontribute within three years, making it easier to replace the amount distributed in your retirement account.
How Much Can You Withdraw Without Penalty, and Should You Withdraw?
Withdrawals of up to $100,000 per person can be exempt from the 10 percent penalty. Even if you have multiple retirement accounts, it only matters for the $100,000 per person. Make sure you have exhausted your other options before taking out of your retirement plan. If you are going to make a withdrawal from the CARES Act, keep it small. The less money removed from an IRA or 401(k) is better. Withdrawals are also taxed on whether or not you originally contributed to your account before or after paying taxes on it.