CARES Act Update: Eligible IRA Withdrawals Now Penalty-Free
Under the CARES Act, individuals who are adversely affected by COVID-19 can now take a penalty-free “hardship distribution” from their IRA, regardless of age.
Normally, you wouldn’t be able to withdraw money from your IRA before age 59½ without paying a 10% penalty. But the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has temporarily changed this rule. Now, IRA account holders—of any age—who are adversely affected by COVID-19 can take a penalty-free “hardship distribution” of up to $100,000.
There’s one catch: Penalty-free doesn’t mean tax-free.
To avoid paying tax on the withdrawal, you must repay the amount to your IRA within three years. If you don’t, you’ll generally owe income tax on the distribution. Other rules and restrictions may apply, too, depending on your situation.
Explore your options for economic relief.
The ability to take penalty-free IRA withdrawals is one of many CARES Act provisions intended to provide taxpayers with economic relief. For the latest CARES Act updates, visit our COVID-19 Clarity Center. If you have questions or concerns, please do not hesitate to contact your DS+B CPA.