CARES Act 401k distribution to fund REI?

[Blake Rumley]

Has anyone used the new CARES act guidelines for 401k withdrawal? It’s my understanding if you qualify, the money withdrawn counts as taxable income but can be paid over the next 3 tax years and no 10% early withdrawal fee prior to age 59.5. Pros/cons of this to fund real estate investing?

[George Blower]

@Blake Rumley

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.

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that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").