New for tax year 2020.
For tax year 2020, if you are under the age of 59 ½, you may be able to take a distribution from your retirement plan without having to incur the 10% early withdrawal penalty. Eligible retirement plan accounts include individual retirement accounts and annuities (IRAs), 401(k) plans (such as qualified pension, profit-sharing, or stock bonus plans), qualified 403(a) annuity plans, 403(b) annuity contracts and custodial accounts, and governmental section 457 deferred compensation plans.
To qualify for penalty-free retirement fund distributions, either you, your spouse, or a dependent must have tested positive for COVID-19, or you must have experienced financial hardship due to being laid off, furloughed, or quarantined.
The distribution will be taxed at your ordinary tax rate over 3 years. You will claim 1/3 of your distribution as income in 2020, 1/3 in 2021, and the rest, 2022. You can elect for the entire amount to be taxed in year 2020.
If you can put back the funds that you withdrew within the 3 years, then you will not be taxed for the withdrawal. You will be able to amend your tax returns if needed.