If your retirement plan rules allow, the CARES Act waives the 10% early withdrawal penalty for distributions up to $100,000 from IRAs and defined contribution qualified retirement plans [such as 401(k) plans] made for coronavirus-related purposes on or after January 1, 2020 and before December 31, 2020. Income attributable to these distributions will be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years after receipt without regard to that year’s cap on contributions. Additionally, defined contribution plans are permitted to allow plan loans up to $100,000, and repayment of existing plan loans is extended for employees who are affected by the coronavirus. A coronavirus-related distribution is any distribution made to an individual (1) who is diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the IRS.
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