In 2020, Americans facing financial hardship due to the Covid-19 virus received assistance from Congress through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Eligible taxpayers were given a tax relief when funds were withdrawn from their 401K plan or other retirement plans.
A penalty of usually 10% applies to early distributions if you were to take out funds under the age of 59 1/2. But under the CARES Act that penalty was waived for early withdrawal up to $100,000 between January 1, 2020 and December 30, 2020. You can spread out taxes from any of the distributions over a three-year period. And return distributions back to your retirement plan inside the three-year period as well.
Who Is Eligible For Covid-19 Relief?
To be eligible for coronavirus-related withdrawals or loans an individual:
- Be diagnosed with Covid-19 virus by a test approved by the Centers for Disease Control and Prevention
- Spouse or dependent diagnosed with Covid-19 by an approved test
- An adverse financial consequence due to an individual or member of the household being quarantined, furloughed or laid off
- Loss in pay due to work hours were reduced or lack of childcare
- Closing of business owned or operated by individual or member of the household
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