$100,000 401(K)Loans, Penalty Free Distributions and More! (Retirement Account Tax Stimulus 2020!)

401(K) and Retirement Account Tax Stimulus Updates 2020

Handout shown in video can be found here:
https://www.dropbox.com/scl/fi/p542qgeruw8zbfdkiibvn/401-K-Tax-Stimulus-Updates-2020.docx?dl=0&rlkey=84tjizrkhzez25f4jynwfetw9

Time stamps so you can jump to any point in the video:
1:27 Penalty Free distributions (How long do you have to do this)
1:47 What retirement accounts qualify for penalty free distributions?
1:57 What about required minimum distributions?
2:24 Who qualifies to take advantage of this?
3:40 Are you taxed on distributions?
5:00 401(K) Loans how they work under stimulus rules
6:15 Are there taxes on 401(K) loans?
7:18 How do interest rates work on these loans?
8:55 Weigh the pros and cons before implementing any of these strategies.

The penalty-free distribution option is available on qualifying distributions made from January 1, 2020 to December 31, 2020.

Accounts that Qualify

All retirement accounts fall under this rule. This includes IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, pension plans, 457 plans and 403(b) plans.

Who qualifies for this? (FYI discuss this with your plan administrator as the requirements are rather broad)
- If you are subject to quarantine.
- If you have been furloughed or laid off
- You have had close or reduce your business hours.
- Unable to work due to childcare changes and availability (closed schools, closed childcare facilities).
- If you have been diagnosed with ***** or someone in your immediate family (such as a spouse or child)

Am I Taxed on the Distribution? (Yes, but not if you pay it back)
The 10 percent early withdrawal penalty is waived, but you are taxed on traditional funds distributed. Congress did provide relief on the taxes on the distribution by allowing taxpayers to pay the tax owed on the distribution over three years.

Can I Pay Back the Funds to avoid tax on distribution? (3 year time frame)
Yes. The special distribution provision allows you to pay back the retirement account over a three-year period. You can make multiple payments back to the account or one lump-sum payment to the account by the end of the three-year window.

401(k) Loans up to $100,000

The new loan option is available 180 days from enactment of the law. The bill was signed into law on March 27, 2020, and as a result, the increased loan amount option will be available until September 23, 2020.
Anyone who has a qualifying employer plan, such as a 401(k) or 403(b) plan.

***These loans are not available on IRA or SEP IRA accounts. Also, a 401(k) with a former employer is usually restricted from taking loans by that former employer.***

What if you are self-employed and do not have a 401(K)
However, some individuals with IRAs, SEP IRAs or former employer plans who are self-employed may establish a solo 401(k) and then roll IRA or SEP IRA dollars over to the solo 401(k) to take a loan from the solo 401(k) account under these special coronavirus rules.

Are There Taxes Due on the Loaned Amount?
There are no taxes or penalties owned when you take the loan. And so long as you pay the loan back, it's a tax- and penatly-free opportunity to access your own retirement savings early.

How Much Can I Take Under These Special Temporary Rules?
- Up to $100,000 or 100% of your account balance if under $100,000.
For example if your account was worth $65,000 you could borrow $65,0000.

What Is the Interest Rate?

- The interest rate for 401(k) loans is currently around 5.25 percent.
- Even though you are paying interest, you are paying that interest to your own 401(k.
- Business owners who use a 401(k) loan to fund their business can expense the interest they are paying back to the 401(k) as if it were a normal business loan.

How Many Loans Can I Take?

By law, you can take as many loans as you want, provided that they do not collectively exceed the total loan amount. However, your specific plan may limit you to one loan per year.

Are there fees for doing this?
Generally yes, they can range from fifty dollars to a few hundred dollars.
What Happens If I Don’t Pay the Loan Back?

Any amount not repaid under the loan will be considered a distribution, and any applicable taxes and penalties will be due by the account owner. Most plans give you a grace period of one missed payment, but after that, the total amount owed under the plan is deemed distributed if you miss your payments.

Links and resources:
https://www.entrepreneur.com/article/348352
https://fortune.com/2020/04/01/what-to-do-with-401k-withdrawal-no-penalty-distribution-cares-act-should-i-keep-contributing-limits-match-stimulus-faq/

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