Those that are experiencing financial hardship due to the coronavirus pandemic, may want to consider withdrawing money from retirement accounts while they can still avoid a penalty. The special exemption allowing early withdrawals without a penalty ends soon.
Passed in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows individuals adversely affected by the pandemic to make hardship withdrawals of up to $100,000 from retirement plans this year without paying the 10 percent penalty that individuals under age 59 ½ are usually required to pay. This exemption is only for withdrawals made by December 30, 2020.
If you decide to withdraw money from your retirement account, you will still have to pay income taxes on the withdrawals, although the tax burden can be spread out over three years. If you repay some or all of the funds within three years, you can file amended tax returns to get back the taxes that you paid.
Qualifying for Early Withdrawal Penalty Exemption
To qualify for the exemption, you must meet one of the following criteria:
- You or a spouse or dependent have been diagnosed with COVID-19
- You or your spouse have suffered financial hardship due to the pandemic, such as a lost job, a job offer rescinded, reduced pay, business closed, or inability to work due to lack of childcare.
This step should not be taken lightly. Withdrawing money now means your retirement funds will be reduced and limits the retirement plan’s ability to grow. But for some people, it may be the best option to pay bills and avoid running up high-interest credit card debt.
For information from the Consumer Financial Protection Bureau on how the withdrawal exemption works, click here.
Medicaid Planning & Long Term Planning Attorney in Avon Lake, Ohio
Not every attorney is a Medicaid planning and long term care planning expert. The laws regarding taxes, choices that affect Medicaid qualifications and long term care planning change to some degree every year. At Joseph L. Motta Co., we pride ourselves in keeping up with changes to components of all long term care planning - including Medicare costs and Medicaid qualifications which is why we're you're best local elder law and estate planning attorney. From our local office in Avon Lake, OH, we help our review all estate planning documents and long term care planning strategies for Medicaid planning. Please call our office at 440-930-2826 to schedule a free consultation .
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