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Your Comprehensive Guide to the CARES Act

Americans who are struggling to pay the bills amid the COVID-19 pandemic may take advantage of
relief granted by the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into
law on March 27, 2020. This newly enacted emergency stimulus package seeks to assist workers
impacted by COVID-19 by increasing access to retirement plan account savings.

Before taking advantage of the package’s retirement plan provisions, it’s important to consider the
effects short-term moves will have on portfolios in the long-term. This guide is designed to help you learn
about the provisions of this historic legislation, understand who is eligible and how to take advantage of
them if you need to.

In many cases, it may be wise to consult a financial professional to help you make decisions that make
the most sense for your circumstances.

Penalty-free retirement plan withdrawals

Normally, anyone who withdraws money from their qualified retirement account before age 59-1/2 is
assessed a 10 percent penalty on that amount. The CARES Act will allow you, regardless of your age, a
“coronavirus-related distribution” to take up to $100,000 from your retirement account in 2020 without
incurring the early withdrawal penalty if you’ve been diagnosed with COVID-19 or had certain other
COVID-19 related impacts. If you take advantage of this provision, you will still owe ordinary income tax
on the amount withdrawn, which could be paid over three years, but that tax can be avoided if the
withdrawn amount is replaced within three years.

If distributions are rolled back into your account using this option, you will have to file an amended tax
return to claim a refund of any tax paid attributable to the rolled over amount.

You may want to tread with caution and treat an early withdrawal as a last resort. Why? It can seriously
compromise your long-term financial security and could increase the risk that you will outlive your
savings in retirement. By selling in a depressed market, you could be locking in your losses.

For example, if you were to take, say, a $30,000 distribution from a $100,000 account and did not repay
it, you would lose the opportunity for compounded growth on that distribution, which adds up over
time.

Consider that a pre-tax retirement account worth $100,000 would grow by $62,000 to $162,000 in 10
years assuming a 5 percent annual return. By comparison, an account worth $70,000 growing at the
same 5 percent rate per year would grow by $44,000 to $114,000 in 10 years.