401k distribution under Cares Act

[Jay Yoo]

I found that I can take a full distribution on 401k under Cares Act if it’s taken by the end of 2020.

I know I would pay the tax on the capital gain, but can you share what your experience are if you’ve done this?

My belief in 401k doesn't perform any assets appreciation much as REI does.

Thank you for your time in advance.

[George Blower]

@Jay Yoo

@Ray Evans

1) A CARES Act Distribution is not subject to the 10% penalty that applies to early distributions (i.e. distributions taken before one turns 59.5).

2) A CARES Act distribution is still subject to income tax (not capital gains tax).

3) Keep in mind that in order to take a distribution under the CARES Act you must have been impacted by the virus in one of the enumerated ways & your current account provider must allow you to take a CARES Act distribution. The IRS recently provided guidance regarding eligibility under the CARES Act and specified that a qualified individual includes an individual who has a reduction in pay (or self-employment income) due to COVID-19.Note: It is too late to take a loan under the CARES Act.

Distributions:

If so, you can take a penalty-free distribution (as well as waive the 20% withholding requirement) from your 401k (assuming that the employer allows it) anytime between 1/1/2020 and 12/31/2020. You may avoid the taxes if you deposit the funds in an eligible retirement plan (which includes anIRA) within "3 years and a day" of the date of the COVID-19 distribution (note: compare to a 60-day rollover). Please note that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").