The recently passed Coronavirus Aid, Relief, and Economic Support Security Act (“CARES Act”) introduced a series of measures to help taxpayers during the ongoing COVID-19 pandemic. A key component includes a provision allowing 401(k) holders to withdraw up to $100,000 until December 30, 2020 without a 10% early distribution penalty that might otherwise apply. Below we discuss this unprecedented opportunity to help you determine whether you qualify and what your options may be.
Normally, 401(k) holders could only roll cash or assets out of their accounts after they’re no longer employed with the company that offered their plan. However, the CARES Act allows for expanded distribution options, including that funds from an active 401(k) can be rolled into a self-directed IRA for investment in the broad spectrum of alternative investment options—real estate, private loans, etc.—that may be unavailable to those who hold employer-sponsored retirement plans.
Again, it’s important to note that early distributions, rollover or otherwise, only qualify for these special CARES Act exceptions if they’re taken to offset expenses resulting from COVID-19. Such expenses could include medical bills related to COVID-19 or lost income as a result of changes to your employment or loss of childcare, either on the part of the 401(k) plan holder or dependents.
New Direction Trust Company does not provide tax or legal advice, so we encourage you to discuss this course of action with your accountant or tax professional if you’re considering pursuing a penalty-free rollover distribution along these lines. To pose account-specific questions about your self-directed IRA, 401(k), or HSA, feel free to give us a call at 877-742-1270 or send us an e-mail at firstname.lastname@example.org.