Tax-Free $100,000 IRA Withdrawal for Coronavirus Pandemic under CARES Act

In summary, if the quarantine caused any adverse financial consequences, a phase so broad that it applies to everyone other than billionaires, you can withdraw $100,000 from your retirement fund tax-free. To maintain the tax-free status, however, one-third must be repaid each year for 3 years. To the extent it’s not repaid, it’s re-characterized as a taxable distribution in the year of the failed repayment.

The $2 trillion dollar Coronavirus Aid, Relief, and Economic Security (CARES) Act is nearly 900 pages long and contains a substantial amount of assistance for individuals and businesses, including meaningful tax relief. This column explains one tax-relief measure that can potentially benefit many IRA owners. Here’s what you need to know:

Coronavirus-related distributions (CVDs) from IRAs are tax-favored IRA owners who are adversely affected by the coronavirus pandemic (and there will be plenty of them) will be eligible to take tax-favored coronavirus-related distributions from their IRAs. To keep things simple, let’s call these distributions CVDs. They can add up to as much as $100,000. You can recontribute a CVD back into your IRA within three years of the withdrawal date and treat the withdrawal and later re-contribution as a totally tax-free rollover.

In effect, the CVD drill allows you to borrow up to $100,000 from your IRA(s) and repay the amount(s) any time up to three years later with no federal income tax consequences. And there are no limitations on what you can use CVD funds for during the three-year period.

If you’re cash-strapped, you can use the money to pay the bills and recontribute later when your financial situation has improved. You can help your adult kids out. You can pay down your HELOC. You can invest the money in the stock market and hope to collect low-taxed long-term gains. Whatever.

You can take one or more CVDs up to the $100,000 limit, and they can come from different IRAs. The three-year re-contribution period for each CVD begins on the day after you receive it. You can make your re-contributions in a lump sum, or you can make multiple re-contributions. You can recontribute to one or several IRAs, and they don’t have to be the same account(s) you took the CVD(s) from in the first place.

As long as you recontribute the entire CVD amount within the three-year window, the whole deal is treated as a tax-free IRA rollover transaction or a series of tax-free rollover transactions. If you’re under age 59½, the dreaded 10% penalty tax that usually applies to early IRA withdrawals does not apply to CVDs.

If your spouse owns one or more IRAs in his or her own name, your spouse is apparently eligible for the same CVD deal if he or she qualifies.

How do you qualify for CVDs?

Good question. Some IRA owners will clearly qualify while others may have to wait for IRS guidance. For now, here’s what the CARES Act says.

A coronavirus-related distribution is a distribution of up to $100,000 from an eligible retirement plan, including an IRA, that is made on or after 1/1/20 and before 12/31/20 to an individual:

  • Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced due to COVID-19.
  • Who is unable to work because of lack of child care due to COVID-19 and experiences adverse financial consequences as a result.
  • Who owns or operates a business that has closed or had operating hours reduced due to COVID-19 and has experienced adverse financial consequences as a result.
  • Who is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention.
  • Whose spouse or dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test.
  • Who has experienced adverse financial consequences due to other COVID-19-related factors to be specified in future IRS guidance.

What if I don’t recontribute the CVD?

Another good question. You will be taxed on the CVD amount that you don’t recontribute within the three-year window, but you don’t have to worry about owing the dreaded 10% early withdrawal penalty if you are under age 59½.

You can choose to spread the taxable amount equally over three years, apparently starting with 2020. But here it gets tricky, because the three-year window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal.

So, you may have to amend a prior-year return and report some additional taxable income from the CVD. Details to follow, because I don’t think our beloved Congress gave much thought to this issue when drafting the CARES Act.

You also have the option of simply reporting the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10% early withdrawal penalty if you are under age 59½.

Can I take a CVD from my tax-favored company retirement plan?

Yes, if your company allows it under rules similar to those for IRAs. Employers and the IRS have work to do to figure out the details.


The CVD deal can be a helpful tax-favored financial arrangement for eligible IRA owners. Thankfully, the CARES Act includes a bevy of other potentially valuable tax breaks to help get us through this mess. Explaining them will keep us busy for a while. Stay tuned.

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Bluebook Citation: Tax-Free $100,000 IRA Withdrawal for Coronavirus Pandemic under CARES Act, Int’l Tax Online Law Journal (June 4, 2020) url.

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