Can I ask my 401k provider for a Cares Act withdraw if my contract ended in June and I have not been able to get a job since then? I have not been infected with Covid.

[bluedeb · Accepted solution]

The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between January 1 and December 30, 2020. A coronavirus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

Relief for taxpayers affected by COVID-19 who take distributions or loans from retirement plans

https://www.irs.gov/newsroom/relief-for-taxpayers-affected-by-covid-19-who-take-distributions-or-loa...

[macuser_22]

Here are the qualifications:

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

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.

[gregoryew]

Thanks bluedeb for providing that information.  I was wondering how I can determine if I am qualified to take the withdraw without the 10% penalty?  I have not been diagnosed with Covid and my contract ended at the contract end date.  However, I have not been able to get a job since then and I am extremely low in cash.  My only option is to get money from my 401k or ask my parents for a loan again.  Could you please tell me if I am eligible for a Cares Act Withdraw?

[gregoryew]

Thanks macuser_22. I guess I am not qualified then.

[Opus 17]

If you have separated from service, you are allowed to withdraw your 401(k) balance and pay income tax plus the 10% penalty.  You also have the right to rollover the balance to a qualified plan at a new employer or to a private IRA that you can open at most investment firms.  You will want to do a direct transfer from plan to plan and not handle the check yourself.

Then, for the CARES act, and if you can certify that you have a COVID-related hardship, the following new rules apply:

1. You don't pay the 10% early withdrawal penalty on the first $100,000

2. The plan trustee does not have to withhold the normal 20%

3. You have up to 3 years to return the money to your plan and "cancel" the withdrawal.  If you do that you file a amended return to get back the tax you paid.

If the 401(k) administrator won't honor your request, you can move the money to an IRA and make the withdrawal from there.  A private IRA will usually have more investment options than the 401(k), but the fees may be higher. 

[dmertz]

In IRS Notice 2020-50, the IRS provided additional circumstances that would qualify one to receive a CRD beyond what was explicitly listed in the CARES Act, including a reduction in self-employment income due to the pandemic.  Since you mention a contract, it's not clear whether you were an employee or an independent contractor.

[gregoryew]

Thanks for your help dmertz.  I was a non exempt employee in San Francisco California.  I think that disqualifies me.  Is that so?

[dmertz · Accepted solution]

If you were an employee with a contract that specified an employment end date, separating from service on that date would not be a qualifying event.  To qualify under the additional circumstances listed by the IRS it seems that you would have had to have received a job offer that was later rescinded.  Being unable to obtain a job offer does not seem to be a qualifying circumstance.

[gregoryew]

Thanks for your help eveyone.