For tax year 2020 ONLY:
The CARES (Coronavirus Aid, Relief, and Economic Security) Act in March 2020 allows for early withdrawals form 401(k) and individual retirement accounts (IRA) penalty-free. These hardship withdrawals can be taken if the account holder is affected by the COVID-19 pandemic. The amount that can be withdrawn penalty-free is up to $100,000.
What Is a Qualified Disaster Distribution?
In order to be a qualified 2020 disaster distribution, the distribution must be a coronavirus-related distribution, that:
- Was made in 2020 before December 31, 2020;
- Was made to a qualified individual.
What is a 'Qualified Individual'?
- You were diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019
- Your spouse or dependent was diagnosed with coronavirus
- You, your spouse, or a member of your household (as defined next) experienced adverse financial consequences as a result of:
• Being quarantined, being furloughed or laid off, or having work hours reduced due to coronavirus;
• Being unable to work due to lack of childcare due to coronavirus;
• Having to close or reduce the hours of a business you owned or operated due to coronavirus; or
• Having a reduction in pay (or self-employment income) due to coronavirus or having a job offer rescinded or start date for a job delayed due to coronavirus