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Coronavirus and Your IRA

Coronavirus and Your IRA

Coronavirus and the IRA:  Right now, the coronavirus or Covid-19 is the elephant in the room.  No matter what aspect of tax, accounting or financial life we discuss, the coronavirus makes an enormous impact on family budgets. Last Wednesday, the IRS reminded taxpayers that the CARES Act has a few hidden treasures in it.

Your IRA:  It was Your Security for the Future, but You Need it Now?

Coronavirus Can Be Financially Destructive.

The Elephant in the Room is COVID-19. You Can’t Ignore It If  You Have Major Expenses Due to Coronavirus Illness.

For example, many people have no idea that there is significant tax relief in the CARES Act if expenses from the coronavirus and its disease, COVID-19 force you to withdraw money from your retirement accounts.

At Gavrilov & Co we thought this tax relief information demonstrated a remarkably compassionate side of the IRS.  So this blog is our way of letting you know about beneficial details if the coronavirus elephant hits you or someone you love.

The Big COVID-19 or Coronavirus Question:  Can I Get Money from My IRA?

When coronavirus strikes, families are likely to remember they have saved money in an IRA.  The IRS and the Cares Act helps you in this situation with two main features:

  • The Cares Act provides some favorable tax-treatments if you have to make early withdrawals because of coronavirus. The special tax treatment will work for withdrawals from retirement plans and IRAs
  • Likewise there are provisions in the CARES ACT that allow “certain retirement plans to offer expanded loan options.”

More Good News from the CARES Act

Are you eligible for coronavirus-related relief? If so, the Cares Act allows you to draw up to $100,000 from IRA’S. This also includes other workplace retirement plans. However, you must do it before December 31, 2020 if your plan allows it. To clarify, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others.

Last Week’s IRS Reminder Memo Broke It Down:

1.    Individuals who met the eligibility requirement could take coronavirus-related withdrawals.

2.    Alternatively, until September 22, 2020, you can borrow as much as $100,000 from a workplace retirement plan. This assumes that the plan will allow it. (It was previously only$50,000)

3.    However, direct loans are not available from an IRA.

How About a COVID-19 Loan from a Retirement Plan?

The CARES Act Could Be Called the Coronavirus Relief Act.

The CARES Act Can Help If Coronavirus Forces You to Close Your Business Doors.

Now, as the Gavrilov & Co tax squad likes to put it, here is the good part.  “For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before January 1, 2021.”

  • However, you must be aware that such a suspended load will accrue interest during the suspension period.
  • And, the Plan administrator can extend the term of the loan to account for the suspension period.
  • Likewise retirement plan recipients can learn more about these provisions in IRS at this helpful online resource. 
  • Remember you must check with your plan administrator to see if their workplace retirement plan offers expanded loan options such as these.

Coronavirus-related IRA Withdrawals:  Clouds with Silver Linings

These COVID-19 -related withdrawals bring several benefits.

1.    You may include the withdrawal in taxable income over a 3 year period.  Of course you also have the option to include it in the taxable income of the year taken.
2.    These special withdrawals due to the coronavirus will not incur the typical 10% additional tax on early withdrawals.  (Normally, withdrawing money before age 59 ½ would cost you the 10% additional tax.)
3.    Likewise, these withdrawals are not subject to mandatory tax withholding.
4.    And you may repay the amounts to the IRA or workplace retirement plan over a three year period.

Borrowing COVID-19 Money from a Retirement Plan

Individuals eligible to take coronavirus-related withdrawals might also be able to borrow as much as $100,000 from a workplace retirement plan until September 22, 2020. This can only happen if their plan allows for such measures. Loans are not available from an IRA.

For eligible individuals, plan administrators can suspend workplace retirement plan loan repayments for up to one year due on or after March 27, 2020, and before January 1, 2021. However, remember a suspended loan is still subject to interest during the suspension period. Also, the term of the loan may be extended to account for the suspension period.

You will need to check with your employment’s plan administrator to see if your workplace retirement plan offers these expanded loan options.

Under the CARES Act, Who is eligible for this type of tax relief?

Coronavirus-related withdrawals or loans are restricted. And you do not really want to join this kind of “club”. But if circumstances befall you, discover the qualification rules below.

 When COVID-19 Strikes: Qualifications for Help from Your IRA Funds

If Coronavirus Expenses Force You to Break-into Your Retirement Fund Early, What Are the Tax Consequences?

You qualify for the tax relief under these circumstances:

  • You have COVID-19.  However, you must be diagnosed by a test approved by the CDC and the Federal Food, Drug, and Cosmetics Act.
  • Likewise, you could qualify if your spouse or dependent relative is diagnosed with COVID-19.
  • Finally, the IRS qualifies you if you are suffering from extreme financial difficulties that result from these coronavirus-related adversities:
    1. You qualify if you were quarantined, furloughed or laid off.
    2. Likewise, you qualify for withdrawals if your employer reduced your work hours or pay, due to coronavirus restrictions.
    3. You can also get these benefits if you had to stay home for childcare.
    4. The conditions of having a job offer rescinded or start date for a job delayed, due to COVID-19, will also allow you to claim these benefits.
    5. Likewise, you will get these benefits if your spouse or a member of your household is quarantined, furloughed or laid off. You can claim it even if they have had their work hours or pay reduced or any of the above conditions, due to COVID-19.

A Reminder for Business Owners

If you or your spouse owned a business, or a member of your immediate household is forced to cut back or close down his business due to the coronavirus, you will qualify for the tax breaks if you withdraw funds from your IRA.

Finding More Coronavirus Tax Related Information

If you want to see more details in the direct IRS wording, check out this linked online resource. Additionally you will also find valuable answers to your questions about the CO

The rule is Never Touch Your Golden Nest-Egg Before Retirement. The exception happens when COVID -19  Strikes. 

VID-19 related IRS withdrawals and the CARES Act relief, in the FAQ’S directly from the IRS.

An Elephantine Take-Away

The Elephant in the room mentioned in the introduction of this article is an old expression. It refers to a gigantic problem that affects everyone in that same room. (the Elephant!) But nobody wants to talk about it.

Indeed, more and more people are trying  to plan work, school and finances around COVID-19 related problems.  Certainly, we wish we could avoid discussing it. However, we feel that much of this information is vital.

The Gavrilov & Co Promise

Therefore, rest assured, Gavrilov & Co will bring you the best and most recent tax news and accounting advice as it relates to COVID-19 and the CARES Act.

Finally, you will know about helpful benefits of the CARES Act and the IRS, if this COVID-19 rogue elephant tramples on your life or the lives of the people you love.