The CARES ACT created exceptions to the 10% early withdrawal penalty on distributions from retirement accounts for individuals who were financially impacted by COVID-19.
Participants in 401(k) plans, 403(b) plans, SEP IRAs, other work-related retirement plans, and IRA account owners could take a withdrawal from their retirement account(s) between January 1, 2020 and December 30, 2020 without paying the typical 10% early withdrawal penalty that normally would be assessed if they are under age 59.5.
The distribution must have been taken between January 1, 2020, to December 30, 2020 and allowed for up to $100,000 in distributions (if you are eligible).
The withdrawal(s) can also be repaid to the retirement account over the next three years (2021, 2022, and 2023) and any such repayments will not be considered part of the annual contribution limits for those accounts.
Finally, the income taxes on the withdrawal(s) can be spread out evenly over three years starting with the 2020 tax return.
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