Cares act distribution vs SDIRA

[Tech Cheng]

I’m looking to use retirement fund to invest. Heard about the Cares act distribution (if you’ve faced covid hardship-which I am)

So wondering if it’s better to take the 401k funds out before end of 2020 (tax breaks) Vs rolling it into SDIRA to invest in rental?

Any thoughts, if SDIRA which companies-I know we got some on BP perks.

Thanks

[George Blower]

@Lisa Koontz

@Tech Cheng

1) A CARES Act Distribution of pre-tax funds from an employer plan can be paid back to a non-Roth Rollover IRA. If the full distribution amount is recontributed to the IRA before your 2020 tax return deadline (including timely filed extension) then not taxes will be owed (although you will still need to work with your tax advisor to report the distribution on your 1040 but you will report the taxable amount as zero - similar to reporting an indirect 60-day rollover).

2) 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that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").