The $2 trillion coronavirus relief package, dubbed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), contains meaningful tax relief.
MarketWatch explains how one provision specifically helps IRA owners in this uncertain time. (MarketWatch)
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 recontribution 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.