Relief for people affected by COVID-19

The CARES Act provides new benefits for people affected by COVID-19 who have retirement accounts.

Normally anyone who withdraws money from their retirement account before reaching the age 59 ½ may be subject to an early withdrawal penalty.

The CARES Act allows qualified individuals affected by COVID-19 to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between Jan.  1 and Dec.  30, 2020.

These coronavirus-related distributions aren’t subject to the 10% additional tax that generally applies to distributions made before reaching age 59 and a half, but they are still subject to regular tax.  The income can be spread over three tax years, which may reduce your tax liability on the distribution. 

Some plans may have relaxed rules on plan loan amounts and repayment terms.  The limit on loans made between March 27 and Sept.  22, 2020 is raised to $100,000.  Plans may suspend loan repayments due between March 27 and Dec.  31, 2020.

The law defines a qualifying person as someone who:

  • Has tested positive and been diagnosed with COVID-19
  • Has a dependent or spouse who has tested positive and been diagnosed with COVID-19
  • Experiences financial hardship due to them, their spouse, or a member of their household:
    • Being quarantined, furloughed or laid off or having reduced work hours
    • Being unable to work due to lack of childcare
    • Closing or reduced hours of a business that they own or operate
    • Having pay or self-employment income reduced
    • Having a job offer rescinded or start date for a job delayed

Employers can choose whether to implement these coronavirus-related distribution and loan rules.  Qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren't changed.  Administrators can rely on an individual's certification that they’re a qualified person.

There have also been changes made to the required distributions of retirement accounts.

Under the relief, taxpayers with required minimum distributions from certain retirement plans can skip them this year.  Distributions that can be skipped were due in 2020 from a defined-contribution retirement plan.  These include a 401(k) or 403(b) plan, as well as an IRA.  Among the people who can skip them are those who would have had to take the first distribution by April 1, 2020.  This waiver does not apply to defined-benefit plans.

People who already took a required minimum distribution from certain retirement accounts in 2020 can now roll those funds back into a retirement account.

The 60-day rollover period has been extended to Aug.  31, 2020.

Financial experts typically advise against withdrawing early from your retirement accounts.  Even though the penalties have been removed it reduces your future earning potential.  It should only be used as a last resort.

David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, David can also be contacted by email at