How to safely take money from your retirement account now

I’ve asked my firm’s CFO Bill Sweet to help me draft a notice to our clients so they can understand the provisions in the CARES Act, a $2 trillion economic rescue bill that President Trump signed into law last week.

In this post, I am only including information about how the Act affects your Individual Retirement Account. If you’d like to speak with our Certified Financial Planners to learn more, you can talk to us here.

Okay, we’re doing this in Q&A format:

Can I take money from my IRA to cope with the economic slowdown?

The answer is yes. And what the CARES Act does is it waives the 10% early withdrawal penalty. So you are free and clear to withdraw up to $100,000 from your IRA and not be penalized. Now, you will still owe income tax on that withdrawal taxed at your ordinary income tax bracket. But here’s the thing, this provision is for people who have been affected by the coronavirus – either you’ve gotten sick, or your spouse has, or one of you has lost your job, or your business has been impacted. I think this would apply to pretty much everyone, to varying degrees, but be prepared to have to show this if you’re using the money.

Can I put the money back to avoid having to pay income tax on funds I end up not using? 

Yes! So, let’s say you’re in the 22% tax bracket – you’ll owe 22% on the amount you’ve withdrawn ($22,000 on a $100,000 withdrawal) BUT, and this is a big but, you’ll have three years to pay the taxes off. So you can split it up equally between 2020, 2021 and 2022. Additionally, you can return cash to your IRA from this early withdrawal whenever you want over the next three years to avoid owing the taxes pro-rata.

Do 401(k)’s get the same treatment? 

Sort of but not exactly. When you take money from an IRA, you’re taking your own money back minus the taxes you owe. In order to take money from a 401(k), 403(b) or 457(b), it’s either a distribution or a loan against those assets. So taxpayers with 401(k) plans have a choice. But the CARES Act has expanded the size of the loan you can take from your 401(k) or similar retirement plan. Now, the borrowing limit has been raised from $50,000 to $100,000. The 10% penalty has been waived, just like for IRA owners. If you choose to take a distribution from a 401(k), you also have three years to repay the loan so as to minimize what you owe in income tax and the limit is $100,000 for this as well, matching the IRA limit.

Can I borrow from my IRA instead of taking a withdrawal? 

Nope. Sorry. You cannot take a loan against your IRA and use those assets as collateral. This would be seen as a “non-qualified distribution” in the eyes of the IRS. Don’t even attempt it.

Can I freeze my Required Minimum Distributions if I don’t want to sell stocks down 30% from their highs? 

Yes! Investors over the age of 72 have been given a waiver to halt RMDs through 2020. Which means you can wait to take money out of an IRA (or other qualified plan account) until next year. We’ve had clients ask us whether or not this includes beneficial IRAs that have been inherited from deceased parents. We’re still waiting for definitive guidance on that, so we’re telling them to hold off before taking these distributions for now. If you have already taken your RMD, you may be able to just roll that amount back into your IRA, so talk with a tax professional or financial advisor first.

If your business is hurting or you have bills coming in with no way to pay them, using an early withdrawal from your IRA is smart, provided you have a plan to return those funds to the account as soon as possible to avoid owing the taxes. This one-time waiver of the 10% penalty makes it less painful to do. If the value of your retirement account has fallen and you do not want to sell your stocks to take required minimum distributions, well, you got a pass this year. Hopefully things will have recovered in time for your 2021 RMD.

Once again, I urge you to talk with a professional before employing any retirement account or tax strategies. You can get in touch with one of our experts at this link.


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. sweet shop online commented on Sep 29

    … [Trackback]

    […] Find More Info here to that Topic: […]

  2. Bitcoin Era Review 2020 commented on Oct 01

    … [Trackback]

    […] Info on that Topic: […]

  3. commented on Oct 03

    … [Trackback]

    […] There you will find 70816 additional Info to that Topic: […]

  4. 안전공원 commented on Oct 17

    … [Trackback]

    […] Find More on that Topic: […]

  5. Zweefparasol commented on Oct 27

    … [Trackback]

    […] Read More Information here on that Topic: […]

  6. Quality Engineering Consulting Services commented on Nov 11

    … [Trackback]

    […] Read More here on that Topic: […]

  7. homework help discord commented on Nov 23

    … [Trackback]

    […] Read More here on that Topic: […]

  8. Matt Erausquin commented on Nov 25

    … [Trackback]

    […] Find More on to that Topic: […]

  9. 토토검증 commented on Dec 22

    … [Trackback]

    […] Here you will find 13554 additional Info to that Topic: […]

  10. bmo ligne action commented on Jan 13

    … [Trackback]

    […] There you can find 42467 more Info on that Topic: […]

  11. lace front wigs commented on Jan 14

    … [Trackback]

    […] Find More Info here on that Topic: […]

  12. Sony CDX-F7700 manuals commented on Jan 20

    … [Trackback]

    […] Find More on that Topic: […]