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COVID19 withdrawal from retirement acct.

Discussion in 'Other Legal Issues' started by OceanSun, Jun 4, 2020.

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  1. OceanSun

    OceanSun Law Topic Starter New Member

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    Jurisdiction:
    US Federal Law
    Under the CARES act, there is the provision to be able to withdraw funds form your 401K, without the usual penalties. And you only have to give your word that it's COVID19 related. The company I work for is trying not to lay anyone off, and is offering to allow you to volunteer to take time off unpaid. It could be a day here and there or a week or a month at a time.

    Several co-workers have taken various amounts of time off, and tapped into their 401K's. I'm curious about a couple things. It seems like this could bit them since they volunteered to take the time off, rather than it being forced. But form what I read in the act, it only says if you incurred a loss.

    The other question is, some of them took a sum of money, but don't know how much time they will actually take. So let's say someone took out enough money to cover 10 days, but only took 2 off, what would be the chances of trouble over that?

    I realize, this is hypothetical given this has never happened before, but what are opinions about the potential of landing in hot water on this?
     
  2. army judge

    army judge Super Moderator

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    I hated hypos in law school.
    I've been a licensed lawyer for decades.
    I don't do hypos, sorry.
     
  3. PayrollHRGuy

    PayrollHRGuy Well-Known Member

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  4. hrforme

    hrforme Active Member

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    The amount able to be taken is limited to $100k (if I remember correctly) and there is no requirement that it match back to a specific amount. The employee is going to owe taxes on the full amount taken (outside of aftertax/Roth moneys)....but will not owe the 10% early withdrawal penalty. It's not just about taking the amount of wages not paid...... and truly it's not your business what other employees are doing. If you want to take such a distribution, figure out the consequences to you personally.

    (Now realize, that the employer/plan must agree to change their plan to allow for such distributions. If not, the employee can take any current distribution allowed by the plan that they are eligible for) and would have to deal with the (over) tax withholding, etc at tax time.
     
  5. OceanSun

    OceanSun Law Topic Starter New Member

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    @hrmorme - Thank You for the response. When you are saying it's not my business, I won't disagree with you as far as they are doing this with their own money. If someone ends up with extra cash in the bank, that's all them. I was just curious how much hot water someone might be looking at with the IRS. I guess what's going through my mind is a bigger picture thing of people in general being able to wreck their retirement so easily. If someone takes one day off, but takes $50,000 from their 401K, for example.
     
  6. OceanSun

    OceanSun Law Topic Starter New Member

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    Then why did you respond? I don't seem to recall asking you specifically.
     

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