Took a CARES Act Retirement Plan Withdrawal? Here's Why You Should Try to Give It Back
Many Americans have struggled financially in the wake of the coronavirus crisis. The CARES Act, which was signed into law in late March to provide relief, threw retirement savers a bone in light of the financial upheaval caused by the pandemic. Specifically, it allowed savers to withdraw up to $100,000 from their retirement plans without incurring a penalty.
Generally, withdrawals taken from an IRA or 401(k) before age 59 1/2 are penalized to the tune of 10%. Under the CARES Act, that penalty is waived for qualifying withdrawals (i.e., withdrawals taken by those specifically impacted by the pandemic). But even though you may have had a good reason to remove funds from your retirement savings earlier in the year, it still pays to put that money back if you're able to do so.
Although the CARES Act waives the 10% early withdrawal penalty that normally applies to premature IRA or 401(k) distributions, it doesn't eliminate the tax burden associated with taking a withdrawal. Traditional IRA and 401(k) withdrawals are taxed as ordinary income. This applies during retirement and also as part of the CARES Act.
Source Fool.com
