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As the COVID-19 pandemic takes an exacting toll on US workers and the economy, new IRS guidance is making it easier for more Americans affected by the virus to take cash out of their IRAs and 401(k)s. The IRS is also offering rollover relief to retirement savers who made a 2020 required minimum distribution.

The move comes almost three months after Congress passed the Coronavirus Aid, Relief, and Economic Security Act. This coronavirus relief package—referred to as the CARES Act—aimed in part to alleviate financial pressure for IRA and 401(k) owners hurt by the virus. The act makes it easier for investors to access retirement savings.

With the coronavirus continuing to strain personal finances, the IRS is offering additional COVID-related relief by expanding the number of Americans eligible to tap their IRA or 401(k). The IRS is also helping investors who took a required minimum distribution, or RMD, before the CARES Act was signed into law.

More Americans can tap 401(k)s, IRAs  

The CARES Act allows “qualified individuals”—investors facing COVID-related hardships—to take a withdrawal of up to $100,000 from their 401(k)s and IRAs in 2020 without facing the typical taxes and penalties.

Initially, the act defined qualified individuals as:

• Those diagnosed with COVID-19
• Those whose spouse or dependent had the disease
• Those who experienced “adverse financial consequences” from being quarantined, furloughed, laid off, or having work hours reduced
• Those who couldn’t work because of lack of child-care
• Those who experienced “adverse financial consequences” due to the closure or reduction in hours of a business they owned or operated

Under new IRS guidance, the definition of a qualified individual now also includes:

• Those whose pay or self-employment income has been cut
• Those who have had a job offer rescinded
• Those whose start date for a job has been postponed due to COVID-19

This IRS guidance is increasing the number of Americans who can receive COVID-related relief as US coronavirus cases hit a record, and US weekly unemployment filings sit at historically high levels—signaling that the pandemic continues to post an economic threat to US households.

IRS extends RMD rollover relief

Separately, the IRS is also allowing investors who took a 2020 RMD from a 401(k) or traditional IRA to roll the money back into their retirement account.

This action offers relief to those retirement savers who took an RMD before the CARES Act—which provided a one-year suspension of RMDs—was signed into law.

Investors who took a 2020 RMD now have additional time to roll the money back into their retirement account. The IRS extended the 60-day rollover period for any RMDs already taken in 2020 to Aug. 31.

Caveats when taking cash out of retirement funds

While many investors are searching for relief from COVID-related financial strain, a trusted financial professional can help you decide if pulling cash from an IRA or 401(k) is in your best interest. You can discuss whether making a withdrawal from your nest egg is prudent and how it may impact your future savings goals. Remember that taking money out of your account today reduces the benefit of compound interest, which helps build your nest egg over time.

If you’re seeking additional insight, the IRS has established a Coronavirus Tax Relief Q&A webpage offering insight on coronavirus-related relief for 401(k) and IRA plans.

Pacific Premier Trust is also here to help you navigate your self-directed IRA and questions on the CARES Act. You can call our Client Services team at 1-800-962-4238 Monday through Friday, 7 a.m.-5 p.m. MT. Please understand that you may experience long wait times, and we appreciate your patience as we handle calls as quickly as possible.

For non-urgent matters, please email us at [email protected].

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

Pacific Premier Trust (formerly PENSCO Trust Company) performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Pacific Premier Trust is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.

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