ROCHESTER, N.Y. (WROC) — CPA Jamie Block of the New York State Society of CPAs says people who have lost their job due to COVID-19 and are having trouble paying bills can take advantage of certain exceptions put in place by lawmakers.
Specifically, Block said families who need cash to pay their bills can access money while avoiding some potential tax implications.
“If you lost your job, cannot work due to a lack of childcare, or you, your spouse, or child had COVID, then you are eligible for certain provisions under the CARES Act,” Block said. “If any one of these applies, then you can be considered affected by COVID.”
If your 401(k) plan allows, you may be able to borrow from it if you were affected by COVID. “With the passage of the CARES Act, 401(k) loan payments may be deferred for up to a year. So, this will allow a little cushion before payments must be made,” said Block.
If your 401(k) plan does not allow for loans, Block said you can look at doing a COVID-related distribution. You can withdraw up to $100,000 from your 401(k) before December 31, 2020. “So long as the distribution is COVID-related, you can take the money out of the 401(k) without a penalty – even if you are under age 59-1/2. Unfortunately, you still must pay income taxes on withdrawals from the 401(k) plan. But the IRS gives you the ability to report the income over 3 years instead of all at once on your 2020 return.”
Block also noted with these COVID-related 401(k) distributions, you have up to three years to put the money back into the 401(k) and not report the income. So, if you took the money out and then don’t need it you can put all the money back into the plan and not pay any tax at all.
Block said while using money from your retirement accounts early should be a last resort, there are some options available to help people during this pandemic.