IRS made it easier to pull $ from retirement plans

retirement accounts. The act temporarily increases how much Americans can borrow against their retirement plans, and it waives the customary penalty for early withdrawal of retirement funds. The relaxed rules for retirement plans initially apply to individuals directly impacted by COVID-19 — those who have tested positive for the coronavirus or who have a spouse or dependent who has become ill.

New guidance from the IRS widens the category of who can tap their retirement plan. Essentially, any plan participant financially impacted by the pandemic or has someone living with them who has been financially affected can now take advantage of tax-friendly provisions of the Cares Act.

So, for instance, a plan participant can withdraw money or take out a loan even if that person is still employed but a spouse is out of work because of COVID-19.

If you’re younger than 59½, you’re ordinarily subject to a 10% early withdrawal penalty, in addition to income tax, if you remove money from an IRA, 401(k) or 403(b) retirement account. The penalty is there to discourage people from tapping their retirement accounts before they retire.

However, under the Cares Act, if you have experienced financial hardship related to the pandemic, the 10% penalty is waived for distributions up to $100,000. The waiver only covers withdrawals made in 2020. Hardship withdrawals are not subject to the usual federal rule that 20% of with