10% Early Distribution Penalty Suspended on Coronavirus-related IRAs & Qualified Plan Distributions
The CARES Act provides that the 10% additional tax on distributions to those under 59.5, does not apply to coronavirus-related distributions, up to $100,000.
A qualified individual must meet ONE of the following criteria:
(1) is an individual who is 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 (CDC)
(2) whose spouse or dependent is diagnosed with such virus or disease by such a test
(3) who experiences 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 Secretary of the Treasury. This would cover those with reduced work hours due to stay at home orders and well as those with additional costs due to stay at home orders.
On a side note, one should consider carefully the consequences of taking early distributions from IRA or retirement plans, as these funds are intended to grow for one’s future retirement and in Florida, these funds are also free from the claims of creditors as long as they remain in the IRA or plan. Taking funds out of a plan could subject those funds to claims made by current or future creditors.