Ask Bob: Under the CARES Act, Can I Borrow Penalty-Free Money From My IRA?

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The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows qualified individuals to take up to $100,000 of penalty-free coronavirus-related IRA and company plan distributions during 2020.

And the word that seems to trip many people up about the new law is “qualified.”

Who is a qualified individual and who isn’t?

In this episode of Ask Bob, a reader writes the following:

My wife and I are both 65. We still work but our income is down a lot because of the coronavirus. We are not taking Social Security yet. If we take $100,000 from an IRA, do we have three years to pay it back without declaring the income on our tax returns in the meanwhile?

To help answer our reader’s question, we turned to Denise Appleby, CEO of Appleby Retirement Consulting.

You may take coronavirus-related distributions of up to an aggregate amount of $100,000 at any time after January 1, 2020 and before December 31, 2020, from eligible retirement savings accounts. But you have to be eligible to take coronavirus-related distributions or CRDs.

Under the CARES Act, individuals eligible for CRDs would have three years to roll over the amount. The three-year period begins on the day after the date on which the distribution was received.

Unless the eligible individual elects otherwise, they would include any taxable portion of the distribution ratably over three years beginning with 2020. And, there’s a waiver of the 10% early distribution penalty.

The bottom line for our reader and his wife: If they are in fact qualified individuals they can take three years to pay back a CRD. If they aren’t qualified, the answer is no.

According to Appleby, you are eligible to take coronavirus-related distributions if you fall into at least one of the following categories:

  1. You were diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,
  2. Your spouse or dependent was diagnosed with such virus or disease by such a test, or
  3. You experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the IRS.

Got questions about money? Get answers. Email Robert.Powell@maven.io. 

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