Hardship Withdrawal Included In 2.2 Trillion Relief Bill

[oscar1]

Per WSJ today, there is a IRA/401k hardship withdrawal provision in the 2.2T bill that passed Senate last night. You have to have lost wages, have the virus or a couple other conditions to qualify. Yes, withdrawals are taxable. My question is, since taxes can be paid back over 3 years, would that mean the income would be spread over 3 years as well (for purposes of managing the $65k ACA cliff)?


Hardship distributions from IRAs and 401(k)s
The “hardship withdrawals” of up to $100,000 would still be taxable, but account owners can pay the income tax due on the withdrawal over three years, rather than in the first year. And those under age 59 ½ would be exempt from the 10% penalty that normally applies.

Alternatively, they can elect to put the money back into a 401(k)-type plan or an IRA within three years, and skip the tax payments, even if the amount they want to redeposit exceeds the annual contribution limit, which is currently $6,000 for an IRA (or $7,000 for those 50 or older) and $19,500 for a 401(k) (or $26,000 for those 50 or older.)

To qualify for the hardship distribution, the account owner or his or her spouse or dependent must have been diagnosed with the coronavirus or lost income due to a layoff, business closure, quarantine, reduction in hours, or inability to work due to a lack of child care.

 

[CRLLS]

Who is the gatekeeper on withdrawals? I wonder how many will W/D from their accounts just because they can, affecting their retirement savings. And if they do withdraw, I doubt that any will put it back within the 3 year period. I understand there has always been a provision for special case withdrawals, I just think the retirement savings should be for retirement savings.

This is a FIRE website.

 

[Fermion]

To qualify for the hardship distribution, the account owner or his or her spouse or dependent must have been diagnosed with the coronavirus or lost income due to a layoff, business closure, quarantine, reduction in hours, or inability to work due to a lack of child care.

This seems incredibly difficult for the IRS to track. How are they going to make you prove you were diagnosed or that you self quarantined? A note from your parents?

 

[Gumby]

Who is the gatekeeper on withdrawals? I wonder how many will W/D from their accounts just because they can, affecting their retirement savings. And if they do withdraw, I doubt that any will put it back within the 3 year period. I understand there has always been a provision for special case withdrawals, I just think the retirement savings should be for retirement savings.

This is a FIRE website.

For an early retiree, the opportunity to get money out of a tIRA or 401k without the 10% penalty is golden. I am over 59.5, so it doesn't affect me personally, but if I were younger, I would certainly be looking to do this if I could at all qualify. I would have to carefully consider the tax implications and ACA cliff, of course, but it could work out very well.

 

[54andchange]

10% Early Withdrawal waived for COVID-19

10% Early Withdrawal waived for COVID-19

This looks better than ROTH Conversions in 2020, IF it applies to your situation. With DW furloughed, we will likely use this COVID-19 Relief in 2020 to reduce future RMDs, and because our state excludes $41,000 of all retirement account types from income tax, with no state early withdrawal penalty.

Only pay 1/3 of federal tax due per year for three years. Sounds perfect for many eligible FIRE folk, do you agree or disagree, and why?
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The no-penalty allowance applies to "coronavirus-related distributions" — i.e. people who are diagnosed with COVID-19 or have experienced financial hardship from quarantine, layoffs, reduced hours, or furlough between now and December 31, 2020.
Distributions will still be included in gross income and subject to regular income tax, but can be spread out and taken over three years.*

 

[Big_Hitter]

another leakage in our "retirement" system

 

[Gumby]

MOD NOTE: Threads merged.