Cashing out 401k / IRA's.

2 Replies

Does anyone have any good ways to cash out 401k / IRA's without, getting taxed to Oblivion?

I am finishing a basement to put two rooms and a bathroom for renters. I have enough in my accounts to do so. I just need to find a better way to get the money out with out all those taxes and penalties.

Are there any covid loopholes?

@Collin WIlkinson

I know that the CARES act, which expires at the end of the year, allows for the 10 percent penalty to be waived AND you can defer the tax penalty over three years.

However, whether or not you qualify for those provisions depends on certain factors. Definitely ask you accountant.

I am currently awaiting a response from my own accountant on this question.

@Collin WIlkinson

Keep in mind that in order to take a distribution under the CARES Act you must have been impacted by the virus in one of the enumerated ways & your current account provider must allow you to take a CARES Act distribution. The IRS recently provided guidance regarding eligibility under the CARES Act and specified that a qualified individual includes an individual who has a reduction in pay (or self-employment income) due to COVID-19.Note: It is too late to take a loan under the CARES Act.


    Distributions:

    If so, you can take a penalty-free distribution (as well as waive the 20% withholding requirement) from your 401k (assuming that the employer allows it) anytime between 1/1/2020 and 12/31/2020. You may avoid the taxes if you deposit the funds in an eligible retirement plan (which includes anIRA) within "3 years and a day" of the date of the COVID-19 distribution (note: compare to a 60-day rollover). Please note that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").

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