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The DFY Blog

Thanks to the Cares Act, You May Be Able to Access Retirement Funds Early and Without Penalty

Posted by Kevin Clayson Thursday, 23 April, 2020

The CARES Act recently passed by the U.S. Congress provides a number of economic relief factors to Americans. One that has not received a lot of attention yet is how CARES can affect your retirement accounts.

When it comes to your retirement funds the Coronavirus Aid, Relief, and Economic Security (CARES) Act states that you may be able to withdraw funds early without a penalty or possibly take a larger loan out of your 401(k). The Act states that it must be a coronavirus-related distribution and details several triggers/qualifiers. One of them is somewhat vague:

One “…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.”

Most people have experienced “adverse financial consequences” and may qualify for this exception.


There are 3 ways individuals can access their retirement savings (401k and IRA) as part of The Coronavirus Aid, Relief, and Economic Security (CARES) Act:

• 10% earlier withdrawal penalty is suspended

If you meet one of the qualifying events which include experiencing financial hardship as a result of being quarantined, furloughed, laid off or working hours reduced then you can withdrawal funds from your retirement account and not be subject to the ordinary early withdrawal 10% penalty for withdrawals before age 59.5.

• You have three years to pay your distribution back to avoid paying income tax on the withdrawal, otherwise, you pay just normal income taxes – no additional penalty.

You can choose to pay back your retirement savings over a three-year period if you want to avoid paying taxes on the withdrawal. Any portion of a pretax or traditional retirement savings withdrawal that is not paid back after three years simply counts as ordinary income and is taxed as part of your ordinary income taxes.

• 401 (k) loan limits are doubled.

Normally you can withdraw 50% of your 401 (k) balance up to $50,000 and then pay back that loan via paycheck withholding payments over a five year time period. Currently, you can borrow up to $100,000. If that is paid back over five years there is no tax consequence. If you don’t pay that back then it is considered a distribution and taxed accordingly.


If you have any questions, while we are not legal advisors, financial advisors, or CPA’s, but we can certainly provide you with the research we’ve done and then take a look at how some of these exceptions may be able to impact your DFY real estate plan.