For those who withdrew up to $100,000 in 2020 from a tax-deferred retirement account or taxable earnings in a Roth account due to a Covid-19-related financial hardship, we have great news. The CARES Act eliminates the 10% withdrawal penalty for such a distribution.

Valid Covid-19-related hardships include a positive coronavirus diagnosis for the account owner, their spouse or a dependent; a lay-off, furlough, reduction in hours, inability to work or lack of childcare because of Covid-19; a delayed or rescinded job offer because of Covid-19; or Covid-related closing or reduced hours for a business owned by the account holder or their spouse.

The CARES act also allows the taxable income associated with that distribution to be recognized equally over the next three years. In other words, you still have to pay tax on the 2020 distribution, but you can pay it in three even installments for the 2020, 2021, and 2022 tax years.

Additionally, the CARES Act also allows participants to redeposit the money within three years of the distribution. If you do choose to return the money, you will owe no taxes, although you may have to file an amended tax return to get back any taxes you paid on the early distribution prior to redepositing it.

If you have any questions on the subject, please contact us at 770-529-7300.

—The 1st Source & Accounting Tax Team