CARES Act Allows Early IRA/401(K) Withdrawls without Penalty - ADR Systems

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Multiple news sources[1] have reported that the CARES Act[2] allows individuals to withdraw up to $100,000 from their IRA/401(k)/403(b) accounts without the traditional 10 percent early withdrawal penalty for those under 59 ½ years old.  The new law also gives individuals up to three years to pay any taxes owed on the withdrawal. This provision can assist divorcing parties in accessing funds to finalize a divorce settlement, pay child support or maintenance or otherwise stay financially solvent during these difficult times.

Individuals are eligible for the benefits of the CARES Act if:

  • You, your spouse or a dependent have been diagnosed with COVID-19.
  • You have experienced “adverse financial consequences” because you have been quarantined or furloughed, or because your hours were cut.
  • You haven’t been able to work because you’ve had to stay home to take care of your kids.
  • You are a business owner who has had to slash operating hours or shut down due to the outbreak.

Note that the eligibility requirements are all COVID-19 related, and the IRS will most likely require proof.

The specifics of the withdrawal provision are as follows:

  • Withdrawals of up to $100,000 from employer-sponsored retirement accounts like 401(k)s, 403(b)s and traditional IRA’s are allowed.
  • The 10% early withdrawal penalty will be waived for distributions made in 2020.
  • There is no mandatory withholding requirement. (In other words, 20% will not be withheld for taxes)
  • The distribution can be taxed as income spread evenly over three tax years (2020-22). If you can pay back the distribution within three years, you can claim a refund of taxes paid.
  • 401(K) participants can now take a loan of 100% of their vested balance (instead of the previous 50% limitation) between March 27, 2020 and September 23, 2020, and loan payments can be delayed up to one year.

It is important to note that individuals should consult with their plan administrator before taking a withdrawal or loan as each plan must adopt the provisions of the CARES Act.

Finally, the CARES Act assists retirees aged 70 ½ or older waiving the requirement of taking a minimum distribution this year.

The law is conditional and individuals should consult with a tax professional to make sure they qualify under the law as well as any employer sponsored plan to make sure that the Plan has incorporated the CARES Act into their plan.  And, of course, with the fluctuations of the stock market, this may or may not be an ideal time to liquidate retirement savings.

CAVEAT: this blog post should not be construed as legal, financial or tax advice. Readers should consult their lawyer, accountant, financial advisor or tax professional.


Hon. Helaine L. Berger, (Ret.) is an experienced civil litigator who tried cases in Criminal, Chancery, Law and Domestic Relations before serving as a judge in Cook County’s Domestic Relations Division for 19 years.  Judge Berger has been active in the legal community, including Chair of the CBA’s Fee Committee and President of the Women’s Bar Association of Illinois.  She is now a senior mediator and arbitrator at ADR Systems where she concentrates in family law.  Judge Berger is flexible and creative in her approach to mediation and has helped ADR Systems launch an innovative fast track mediation program for family law cases.

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[1] Forbes, Money, NerdWallet, Washington Post

[2] Coronavirus Aid, Relief and Economic Security Act

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