If you own IRA’s and you have been affected by COVID-19 pandemic, you may be eligible for taking a tax-favored distribution from your IRA(s).
An eligible individual can distribute up to $100,000 from his or her IRA(s) in 2020 without paying a 10% early withdrawal penalty. It could be even tax-free if the eligible individual chooses to contribute the amount back to IRA within three years from the withdrawal date. Such repayment within the three-year period will define the COVID-19 related distribution as the tax-free rollover transactions.
If the eligible individual can’t repay the amount back to the IRA, you may need to recognize the distributed amount as income over 3 years of time starting from 2020. Say an eligible individual distributed $90,000 in 2020, and no repayment was made, the income of $30,000 (without the 10% early withdrawal penalty) will be recognized in 2020, $30,000 in 2021, and $30,000 in 2022.
You and your spouse are two individuals. If both of you are eligible for this COVID-19 related distributions, your family can distribute up to $200,000 in 2020.
There is no restriction on the use of the proceeds. Do whatever you want with YOUR money.
You have read all the good tax-favors related to this distribution in this article so far, I know you must have this question in your mind. Who is eligible for such privilege?
Eligible individual:
- who is diagnosed with COVID-19 ; or
- whose spouse or dependent; or
- who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or forced to reduce work hours due to COVID-19; or
- who is unable to work because of a lack of child care due to COVID-19 and experiences adverse financial consequences as a result; or
- who owns or operates a business that has closed or had operating hours reduced due to COVID-19, and who has experienced adverse financial consequences as a result; or
- who has experienced adverse financial consequences due to other COVID-19-related factors to be specified in future IRS guidance.
I am glad to see this relief from CARES Act, it will definitely help a lot of families to get cash on their hands right away.
Take care and be safe!
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