CARES Act Part IV: COVID-19-Related Distributions & Loans

The CARES Act creates distribution and loan opportunities of up to $100,000 from IRAs, employer sponsored retirement plans, or a combination of both for those impacted by COVID-19.


It appears the intent was to make this provision broadly available. To qualify for a Coronavirus-related distribution you must have been impacted in one of the following ways:

  • Account holder, spouse, or dependent has been diagnosed with COVID-19
  • Adverse consequences suffered as a result of being quarantined, furloughed, laid off, or having work hours reduced due to the disease
  • Inability to work due to a lack of childcare as a result of the disease
  • Own a business that has closed or reduced hours because of the disease
  • Any other requirement deemed OK by the IRS

In addition to making the distributions available, the act provides some additional allowances:

  • Exemption from the 10% early distribution penalty
  • Mandatory 20% withholding requirement waived
    • This applies to distributions from employer sponsored retirement plans
  • Distributed funds allowed to be recontributed within three years
    • Beginning on the day after an individual receives a Coronavirus-Related Distribution
    • Repayments can be made to any retirement account
    • Repayment can be made via a single rollover, or multiple partial rollovers made during the three-year period
    • If distributions are rolled using this option, an amended return can (and should) be filed to claim a refund of any tax paid attributable to the rolled over amount
  • By default, the income from a Coronavirus-Related Distribution will be split evenly over 2020, 2021, and 2022. A taxpayer can, however, elect to include all of the income from a Coronavirus-Related Distribution in their 2020 income
    • Generally, spreading the income over three years should result in a better tax outcome. However, there is a potential advantage to including all the income in 2020 if your income is significantly reduced this year


Employers have the ability to modify their retirement plans to offer the enhanced loan options afforded by the CARES Act:

  • Maximum loan amount increased from $50,000 to $100,000 for affected individuals
  • 100% of Vested Balance is eligible
  • Payments due on existing loans for the remainder of 2020 can be delayed for up to one year

Proceed with Caution

While the options being offered could potentially aid some individuals and families greatly impacted by the global pandemic, we strongly encourage consulting with a qualified financial and/or tax advisor to review your options and the potential short- and long-term consequences prior to making any decisions.

Withdrawing retirement funds, even temporarily, can have a big impact on the growth of your account long term. Plus, with the declines we’ve seen in the stock market this year, selling investments for loans or distributions can be even more harmful. Keep in mind that there will still be tax consequences for distributions, even though the premature distribution penalty is waived. In the case of loans, if you lose your job you could be required to pay back borrowed funds immediately, which may force the loan to be treated as a distribution (and the 10% penalty may apply in this instance).

401(k) Team

Megan Nichols, CFP® and Stephen Palm, CFP®