If my wife was laid off due to the Covid-19 Pandemic. Does that qualify me, her husband, for the 401 K Care Act; where I am allowed to withdraw without penalties?

[GiseleD]

Based on your description, yes. Certain taxpayers are permitted to withdraw up to $100,000 from a retirement plan or IRA for “coronavirus related​ distributions” without incurring the 10% premature distribution penalty.

A coronavirus-related distribution (PDF) includes a distribution:

• Made after Jan. 1, 2020 and before Dec. 31, 2020.
• To an individual who is diagnosed the with virus SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention.
• To a spouse or dependent of a person diagnosed with such virus by such a test.
• To persons who experience adverse financial consequences as a result of being quarantined, 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.

You can avoid the penalty, but you will still have to pay regular income tax on the distribution. 

[dmertz]

As defined in the CARES Act, it appears that the exception applies to distributions from retirement accounts of the individual who was laid off, not to distributions from retirement accounts of that individual's spouse.  Specifically, SEC. 2202(a)(4)(A)(ii)(III) does not mention the individual's spouse. However, the IRS has not yet issued guidance on this and the Act gives the IRS authority to expand the definition.  The exact wording in the Act is:

(A) CORONAVIRUS-RELATED DISTRIBUTION.—Except as provided in paragraph (2), the term “coronavirus-related distribution” means any distribution from an eligible retirement plan made—

(i) on or after January 1, 2020, and before December 31, 2020,

(ii) to an individual—

(I) 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,

(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or

(III) 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 (or the Secretary's delegate).

[berkelFAB]

Hi,

Has anyone confirmed this yet?  My wife has a 20% pay reduction for a few months, so we would like take a 401k withdrawal under the Care Act from my account.

My hours/pay were not affected, but overall we are financially impacted.

I was also trying to find clarity on this:  

"You’ve been financially impacted by other factors determined by the treasury secretary"

But haven't seen what other factors are in scope.

Thanks!

[dmertz]

The IRS has not yet released and expansion of the definition of a qualified individual.  Reduction in pay rate is not presently a qualifying circumstance.

[fanfare]

Take the money out of your wife's 401K and you will not have any problem.

[berkelFAB]

Thank you.  We completed the withdrawal from my wife's 401k already, but would like to take a withdrawal from my account as well.

[Lindy11]

Can EACH spouse withdraw 100k (200k total) if the wife was laid off due to Covid (and having to stay home and take care of 3 kids)  ? 
Income was cut in half. 
Or is it per household 100k? I know it should be last resort but husband may be laid off soon too, 

That is still up in the air.

Please inform on this part of the Cares Act,

[dmertz]

Subsequent to the previous posts in this thread, the IRS expanded the definition of a qualified individual to include the spouse of the individual who was laid off.  This means that as long as they experienced adverse financial consequences of the wife being laid off, the wife is a qualified individual because she was laid off and the husband is also a qualified individual because his wife was laid off.  Each qualified individual can take Coronavirus-Related Distributions totaling up to $100k.  The $100k limit is not a household limit.

[fanfare]

The only problem here is that your retirement nest egg is reduced by $200,000.

Presumably you will spend this on swimming pool maintenance and your toilet paper stash.