Coronavirus-related distributions (CVDs)
There is an interesting article from Marketwatch regarding the recently signed coronavirus relief bill.
IRA owners who are adversely affected by the coronavirus pandemic (and there will be plenty of them) will be eligible to take tax-favored coronavirus-related distributions from their IRAs. To keep things simple, let’s call these distributions CVDs. They can add up to as much as $100,000. You can recontribute a CVD back into your IRA within three years of the withdrawal date and treat the withdrawal and later recontribution as a totally tax-free rollover.
You can take one or more CVDs up to the $100,000 limit, and they can come from different IRAs. The three-year recontribution period for each CVD begins on the day after you receive it. You can make your recontributions in a lump sum, or you can make multiple recontributions. You can recontribute to one or several IRAs, and they don’t have to be the same account(s) you took the CVD(s) from in the first place.
As long as you recontribute the entire CVD amount within the three-year window, the whole deal is treated as a tax-free IRA rollover transaction or a series of tax-free rollover transactions. If you’re under age 59½, the dreaded 10% penalty tax that usually applies to early IRA withdrawals does not apply to CVDs.
Can I take a CVD from my tax-favored company retirement plan?
Yes, if your company allows it under rules similar to those for IRAs. Employers and the IRS have work to do to figure out the details.
https://www.mcafeetaft.com/new-coronavi ... and-loans/
https://www.bloomberg.com/news/articles ... ment-money
https://www.marketwatch.com/story/coron ... 2020-03-27
Essentially, for the IRA accounts, this will be a 3-year rollover up to 100k that does not require a lump sum payback (rollover) as long as the payback (rollover) is completed within 3 years. In case of a distribution, it appears the 10% penalty is waived for those that are younger than 59 1/2 for up to 100k.
How would the rules for retirement plans work? Since the current retirement plans allow loans up to 5 years, but limits the amount to 50k, perhaps they will simply increase the loan amount to 100k and waive the interest requirement? Or could it be a parallel approach where both options will exist at same time?
So this would be, in effect, a 100k loan at 0%, 36 month term.
Does the middle class really have this kind of savings lying around?
Per Bloomberg --
"The legislation requires that the money be a “coronavirus-related distribution,” but the rules are loose. People diagnosed with the virus are eligible, along with anyone who “experiences adverse financial consequences” as a result of the pandemic, including an inability to find work or child care. Retirement plan sponsors are told to rely on employees’ word that they’re eligible."
It also makes it easier to borrow money from 401(k) accounts, raising the limit to $100,000 from $50,000. The payment dates for any loans due the rest of 2020 will be extended for a year.
One provision in the bill would let investors of any age take as much as $100,000 from retirement accounts this year without paying an early withdrawal penalty. They also could avoid taxes on the withdrawal if the money is put back in the account within three years. If it can’t be returned, taxes could be paid over three years.
These distributions are subject to income tax withholding at 10%
unless the participant elects a different percentage. -- mcaffeetaft
If these turn out to be true, then this would present an arbitrage opportunity. Currently, 36 month term CD is around 2% -- that's about $6,000.
Touching and spending retirement money is a very foolish thing to do
, and I certainly have no intention of spending my retirement money to re-elect this fool. It will be locked up in a CD