The CARES Act provided taxpayers with the option to take penalty-free coronavirus-related withdrawals of retirement funds of up to $100,000 in the aggregate between January 1, 2020, and before December 31, 2020 (meaning the distribution must be taken by 12/30/2020 to qualify).
To qualify for the penalty relief, taxpayers must have a COVID-related reason for taking the money out of their retirement plan. The CARES Act provided a list of qualifying factors, and stated that other factors would be determined by the Secretary of the Treasury. IRS Notice 2020-50 provides us with those additional factors provided by the Secretary of the Treasury.
A qualified individual for purposes of coronavirus-related distributions:
- To a person diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention or whose spouse or dependent was so diagnosed;
- To a person experiencing adverse financial consequences as a result of:
- Being quarantined, furloughed, or laid off;
- Having work hours reduced due to the virus;
- Being unable to work due to a lack of child care;
- The closing or reducing of hours of a business owned or operated by the individual due to such virus;
- The individual having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19;
- The individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
- Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.
For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.
Note: California does not conform to all of these provisions. Generally CA conforms to retirement-related items such as exclusion of the early withdrawal penalty, but they do NOT conform to changes made with regard to increasing allowable loan amounts from a qualified retirement account from $50k to $100k.