What is the CARES Act and what you should know before it expires this month? On March 27, 2020, the Coronavirus Aid, Relief, Economic Security or CARES Act was implemented and designed as a stimulus package that unfortunately is set to expire this month, December 31, 2020, and so I am rushing this information out to you in order to give you time to take advantage of this most likely once in a lifetime opportunity to protect your IRA, 401(k), and 403(b) from what is predicted by some analysts to be a 70% correction or loss in market value coming in 2021. The CARES Act does many things which included the stimulus check you most likely got earlier this year, but I’m focused here on how it can help you specifically. The rules state that if you contracted COVID or a family member has or you have been financially burdened in any way due to COVID then you would be eligible to take a penalty-free withdrawal of up to $100,000 and this is important, even if you are still contributing to it with a current employer with a delayed repayment of one year or if you don’t pay it back (which is what I am recommending here) then you have 3 years to pay the capital gains taxes on that withdrawal amount. You will not have to pay the typical 10% early withdrawal penalty but will be on the hook for the 20% tax on that amount but speak to your tax advisor regarding your specific tax bracket asap to find out for sure what it would be specifically for you.
How to act on it? You will have to call the holder of the account or visit your retirement benefits portal to request the withdrawal. Check with your human resources department for that information if you don’t know it. There is a chance that your employer doesn’t allow for this withdrawal, but if you don’t ask, the answer will always be no.
After 2020 you will not be able to take out up to $100,000 from your work-provided retirement account while you are still contributing to it, nor will you be able to take it out without an additional 10% penalty until after age 59 and a half.
Need advice on how to invest it in a safe and secure retirement vehicle? Reach out to me for always free financial advice at healthwealthandrealestate.com to fill out the form on the Get in Touch link, and thanks for watching.