The CARES Act and access to your retirement funds

Monday’s post, about investing your retirement savings in your community rather than Wall Street, mentioned the ability to borrow from your 401(k), 403(b), SEP, SIMPLE, ESOP, or other qualified retirement plan.

I’d like to clarify that you can take such a loan even if you have not taken the plunge into the self-directed retirement pool.

On March 27, the CARES Act temporarily increased the amount you are able to borrow. Ordinarily, you may borrow the lesser of $50,000 or 50% of the vested account balance. The CARES Act increases those limits to $100,000 or 100% of the vested, until September 23, 2020.

You may need the funds for yourself, and it is also possible to lend your wealth to others who need it. Next month, The Next Egg is hosting a webinar on borrowing from your existing qualified plan for community investment. Tuesday, July 17, 12-12:30 EDT.

The CARES Act also waives the ordinary 20% tax withholding imposed on such disbursements. Your plan may also offer a year’s deferral on repayments. Check with your employer or plan administrator for details—employers and administrators may choose not to offer these benefits.

The CARES Act also offers some relief if you need to take a distribution from a plan (for instance, IRAs do not allow borrowing). Any early distribution you make in 2020 will be exempt from the 10% penalty for early withdrawal.

Further, you have options for handling the regular taxation of these disbursements from your traditional IRA. You may choose to allocate the income for taxation across three tax years (and this options is available even if you are not taking early withdrawals). Additionally, you may choose to repay the disbursement within the same timeframe (so, by the end of 2022).

If your plans offer these benefits, you may take advantage of them by self-certifying that you, your spouse or dependent, or your income were affected by COVID-19. Reporting for all of these transactions is still being established, and varies by plan.


Illustration of an analog numeric typewriter, superimposed on a paper chart of printed numbers.

Tip Jar

If you find this content useful or interesting, send me a tip.

$1.00

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: