Did you know...

That because of the Coronavirus Federal CARES Act, individuals will have penalty and tax relief for withdrawing money from eligible retirement accounts in 2020? What exactly does this mean?

Let's break this down:  You are Joe Schmoe, who has been negatively financially affected by the COVID-19 pandemic, either by having your hours cut at your job, being laid off by your employer, or as a self-employed small business owner who cannot operate at full capacity.  

Regardless of the reasons, many people are now struggling to make ends meet because of the drastic pay cuts happening all across our country as a direct result of this pandemic. Thankfully, there is section 2202 of the Coronavirus CARES Act, which highlights the following in this situation:

• Distributions can me made before normal retirement age- the CARES Act allows for you to withdraw money from your retirement plan(s) before the normal retirement age of 59 1/2
• Distributions can be made up to $100,000 - these distributions can be made from any eligible retirement plan(s) combined, but all distributions to individuals must be made by December 31, 2020
• Determine if you are qualified - the IRS has issued guidelines to determine who is eligible to receive these distributions, as listed here:
  1. You, your spouse, or your dependent(s) have been diagnosed with COVID-19
  2. You have experienced negative financial consequences as a result of being unable to work, working reduced hours, or having to close or reduce hours of a business that you own or operate due to COVID-19
  3. You have experienced adverse financial consequences as a result of not having the option of child care due to COVID-19
• The typical 10% tax does not apply - normally, there is a 10% tax penalty on early distributions; however, this is waved as long as the distribution is made by December 31, 2020
• Paying the taxes on the distributions can be spread over three years- this means that whatever is withdrawn from your retirement accounts in 2020 can be reported on the next three years' tax returns - an example is if you receive a $12,000 Coronavirus distribution by December 31, 2020, you will report $4,000 of income on your federal tax return for tax years 2020, 2021, and 2022 (unless you choose to report it all for 2020) - this may aid in preventing you from being pushed into a higher federal tax bracket (saving you money)
• You can pay the distribution back- you will have three years to pay any Coronavirus related distributions back to your retirement plans - if you choose to do this, you can then amend your 2020 and 2021 federal tax returns to get a refund issued back to you for only the taxes that you paid on the Coronavirus related distribution