As many people are facing the financial crunch, one of the CARES act provisions that my clients are already taking advantage of is related to IRA and 401k distributions. These can be used as part of your negotiation and settlement strategy.

For distributions from an IRA:

  • if you have financial need, the CARES act allows for a distribution of up to $100,000 without penalty (for those individuals under 59.5 years old).
  • The CARES act also allows the distribution to be repaid over the course of 3 years – this removes the tax consequences of the distribution regardless of age.
  • If you are unable to repay the distribution, the tax liability associated with the distribution can then be stretched over 3 years.

For distributions from a 401k:

  • Hardship distributions are expanded to individuals impacted by the virus (in addition to normal hardship distributions)
  • The 10% early distribution penalty related to the hardship distributions is waived
  • Tax liability related to these distributions can be extended over 3 years
  • LOANS:
    • A CARES act provision increases the max loan amount from $50,000 to $100,000 (up to the total value of the account)
    • Loan provisions apply to new loans or those taken within last 180 days.
    • Payments related to these loans can be suspended for up to one year.