< Back To Article List

IRA Penalty-Free Distributions

Posted on

Ordinarily, a 10% penalty tax generally applies to distributions from an employer retirement plan or individual retirement account (IRA) before age 59½ unless an exception applies. Some IRA exceptions include

  • Disability
  • Beneficiary of deceased IRA owner
  • Substantially equal periodic payments
  • To the extent of certain medical expense

However, due to the coronavirus pandemic, the penalty tax will not apply to up to $100,000 of coronavirus-related distributions during 2020.

While the distributions are penalty-free, regular income tax still applies. However, the income resulting from a coronavirus-related distribution may be spread over three-years for tax purposes unless an individual elects otherwise. Coronavirus-related distributions can also be paid back to an eligible retirement plan within three years after the distribution was received. And, an individual who receives a coronavirus-related distribution may, at any time during the 3-year period, rollover all or any portion to a qualified plan or to an IRA.

For purposes of the distribution and loan rules described here, “coronavirus-related” applies to individuals diagnosed with the illness or who have a spouse or dependent diagnosed with the illness, as well as individuals who experience adverse financial consequences as a result of the pandemic. Adverse financial consequences could include quarantines, furloughs, and business closings.

DISCLAIMER: Information provided by Hoyle, CPA, PLLC on social media, on its website, and related free information distributed via email is intended for reference only. The information is designed solely to provide guidance and is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Responding to such inquiries does NOT create a professional relationship between Hoyle, CPA, PLLC and participant and should not be interpreted as such. Although Hoyle, CPA, PLLC has made every reasonable effort to ensure that the information provided is accurate, Hoyle, CPA, PLLC, and its shareholders, managers, and staff, make no warranties, expressed or implied, on the information provided. The participant accepts the information as is and assumes all responsibility for the use of such information.