People who have been impacted by COVID-19 may take distributions of up to $100,000 in 2020 from their IRAs or company retirement accounts. The definition of being impacted by coronavirus is quite broad and includes yourself or a close family member being diagnosed with the virus, or experiencing financial difficulty due to the virus as a result of quarantine, layoff, reduced work hours, etc. Please see detailed IRS guidance for more information on the meaning of “impacted by the coronavirus.”
The tax benefits associated with this change are:
• Exempt from the 10% penalty. Individuals under 59 1/2 may access retirement funds without the normal penalty. The distribution will still be taxable.
• Eligible to be repaid over three years. Beginning the day after an individual receives a coronavirus-related distribution, they have up to three years to repay all, or a portion of, the distribution back into the retirement account. If you repay during that three-year time frame, you can amend the 2020 tax return and claim a refund related to any part of the distribution placed back into the account.
The income associated with a coronavirus-related distribution (by default) will be taxed evenly over 2020, 2021 and 2022. Taxpayers may elect to have the entire amount taxed in 2020.