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PENALTY FREE "COVID DISTRIBUTION" EXPIRES 12/31

PENALTY FREE "COVID DISTRIBUTION" EXPIRES 12/31

2020… The year many of us would just finally end so we can start fresh. This year has changed "normal" for most Americans and has left many with feelings of uncertainty and despair. The government has made attempts to ease the difficulties we face each day and the hope is that more will soon be coming. But while we wait for Congress to reach a compromise, there are still overlooked options available for those who need help sooner.

The CARES Act provided an opportunity for qualified individuals to take a distribution (of up to $100,000) from their IRA, 401(k) or 403(b) without penalty, and to spread the tax impact over a three-year period. To qualify the individual must meet one of the following:

  • You are diagnosed with COVID-19 by an approved CDC test
  • Your spouse or dependent was diagnosed with COVID-19 (as above)
  • You experience adverse financial consequences as a result of:
    • Being quarantined, furloughed or laid off due to COVID-19
    • Unable to work due to lack of child care due to COVID-19
    • Closing or reducing hours of a business that you own or operate due to COVID-19

The sticking point to this opportunity is that it must be completed before December 31, 2020. In addition to the ability to spread the tax impact over three years, the individual also has the option to repay all or a portion of the distribution during those three years to eliminate or reduce those taxes. One other option is to elect to pay all of the taxes in the year of distribution (if you believe that tax rates will increase in the future).

If you are a qualified individual it may be worthwhile to consider this “COVID distribution” as an opportunity to help you through a difficult time. As always you should consult your trusted tax advisor at UHY.

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