Taxes: Coronavirus-related relief for retirement plans and IRAs

Lindsey Lee

By Lindsey Lee

Due to the coronavirus pandemic, there is additional relief for taxpayers experiencing economic hardships. The Coronavirus Aid, Relief, and Economic Security (CARES) Act helps eligible taxpayers in need by providing favorable tax treatment for withdrawals from retirement plans and IRAs and allowing certain retirement plans to offer expanded loan options.

You are a qualified individual if –

  • You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

 

  • Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

 

  • You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

 

  • You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

 

  • You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Coronavirus-Related Withdrawals From Retirement Accounts

Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans, and others. The 10% additional tax on early distributions does not apply to any coronavirus-related distribution.

Tax Treatment of Coronavirus-Related Withdrawals

The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $12,000 coronavirus-related distribution in 2020, you would report $4,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

As always, it is especially important that you talk to an experience tax professional that can sit down with you and go over your specific tax situation.

Lindsey Lee is an Enrolled Agent with Tax Fix Now. For more information, contact Lindsey Lee at 972-318-1040 or [email protected]

 

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CTG Staff
The Cross Timbers Gazette is a locally-owned and operated regional newspaper and website covering community news and people in southern Denton County, TX, including the communities of Argyle, Bartonville, Canyon Falls, Copper Canyon, Double Oak, Flower Mound, Harvest, Highland Village, Lantana and Robson Ranch.

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