CARES Act: Borrowing From Retirement Accounts and Halting RMDs

Denver Wealth Management |

The CARES Act, which was signed into law last Friday (3/27) by President Trump, includes many facets aimed toward stimulating our economy as a whole. This is done through aiding individual American’s via stimulus checks and small businesses via forgivable loans.  

In recent weeks, we have received numerous questions regarding the options borrow from your retirement accounts during this economic downturn. Before reading any further, we urge you to reach out about your specific situation before taking action. This information may not be the most beneficial solution for you.

With that said, we do understand the impact this may have on you and your family. Therefore, we have outlined some important information below. 

Withdrawals From Your IRA

You may take penalty-free withdrawals from your IRA of up to $100,000. The CARES Act effectively waives the 10% penalty fee associated with early withdrawals from your IRA.

Please keep in mind that this is only available to people who have been directly impacted by coronavirus. Sure, we have all been impacted at this point, but this is aimed toward benefiting those who have been infected, whose spouses have been infected, or who have lost jobs due to coronavirus.

Also, you will still owe income tax on the amount withdrawn from your IRA relative to your regular tax bracket. You will have three years to pay the entirety of income tax accrued. Should you not use the entire amount that you withdrawal from your IRA, you may reinvest that money to avoid paying income taxes on that amount.

Borrowing From Your 401(k)

You may borrow money from your 401(k) or similar retirement account; however, the process isn’t the same as taking money from your IRA.

The CARES Act increased the amount that you may borrow from $50,000 to $100,000, and the 10% penalty has been waived – similar to an IRA.

Borrowing from your 401(k) differs from an IRA in the sense that it’s either seen as a distribution or collateral loan. Simply put, the money in an IRA is your money – you’re withdrawing your own money.

Again, you will have three years to pay back the loan in order to minimize the amount that you pay in taxes.

Freezing Your RMD

Over the past few weeks, the stock market dropped nearly 40% from an all-time high, causing a bear market. Then, it jumped up nearly 20% in a few days and back down five and up and down and up and down. In times of uncertainty, the market becomes highly volatile.

For many investors, the significant drop means selling stocks at a substantial loss to take required minimum distributions (RMDs). For investors above the age of 72, the CARES Act waives RMDs through 2020. In other words, you do not have to take distributions until next year in hopes that the market recovers.

Final Thoughts

We recommend that retirement accounts be used as a driver for your future – your long-term goals. In the case that you are struggling to make ends meet, please do not hesitate to reach out about your potential options. We are here to help you.

For our investors over the age of 72, please call if you have questions about your RMDs.

If this information is relevant to family members, friends, colleagues, etc., please do not hesitate to call. If they are important to you, they are important to us, and it’s during times like these that we are a resource to best inform, educate, and serve.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Roth IRA offers tax deferral on any earnings in the accounts. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may results in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

All information is believed to be from reliable sources; however, Denver Wealth Management and LPL Financial make no representation to its completeness or accuracy.

The content provided herein is based on our interpretation of the CARES Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the CARES Act.