Found out that our current babysitter was diagnosed with COVID. We are looking at options to reduce wife’s work hours and withdraw 401k under cares act. Does this qualify

Possibly, see 5th bullet  below:

 

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

 

Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

• You are 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;

• Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

• You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

• You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

• You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.

 

 

Unless Congress passes a new coronavirus support package that changes the law, a CARES act qualified withdrawal must be completed by December 30. You probably need to start the withdrawal several days ahead because it may take your plan a few days to process the request. If you make the request on time but the withdrawal is not completed until January, then it won’t be eligible unless the law changes.

 

are you really sure this is wise? Most people recover from Covid in about two weeks, and your caregiver would be able to go back to work probably by the first week of January. And you may already be planning to take time off around Christmas, so you may not need that much care.  Conservatively invested, $10,000 can quadruple into $40,000 over 30 years so if you are age 35 or so, and you withdrew $10,000 now, you would be depriving yourself of more than $40,000 in retirement.  You may have other reasons to want to reduce your hours and stay home with your child, but have you really considered the long-term implications of your possible response to a short term emergency.

That is an excellent point.   Many 401(k) trustees will take 5-7 days to process a distribution that requires special handling and with the weekends and holidays ahead, any such distribution needs to be taken very soon to have it applied to the 2020 tax year.