The IRS issued a reminder on July 29, 2020 that retirement account (e.g., solo 401k plans) and IRA account holders affected by COVID-19 may be able to access their retirement funds under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provided they meet one of COVID-19 requirements (see below).
As the law currently stands under the CARES Act, self-employed individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or their self-employed solo 401k plans before December 31, 2020.
Important Note: The $100,000 maximum distribution does not apply per IRA or per solo 401k plan. Instead, the $100,000 is aggregated between your IRAs and your solo 401k plan.
Things to know about the coronavirus-related distributions:
- May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option.
- Are not subject to the 10% additional tax on early distributions that would otherwise apply to most withdrawals before age 59½,
- Are not subject to mandatory tax withholding, and
- May be repaid to an IRA or solo 401k plan within three years.
Taking a Solo 401k Participant Loan
Self-employed Individuals who participate in a solo 401k plan and qualify for COVID-19 relief may also, until September 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from their solo 401k plan. Loans are not available from an IRA.
Tip: Since a solo 401k plan is for owner-only businesses and their spouses with no full-time W-2 employees, each participant can borrow up to 100,000 from their respective solo 401k funds. Therefore, if both spouses have funds in the same solo 401k plan, they can each borrow $100,000 from their respective participant funds under the solo 401k plan.