COVID-19 Loans, Distributions, or Withdrawals From Self Directed IRAs

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The COVID-19 pandemic is challenging each one of us in different ways— some harder than others.  Many have started working remotely, or wear masks whenever they leave the house.  Many have been laid off, furloughed, or need to take care of a loved one who may have contracted the virus, or maybe became sick themselves.  We have all been affected.

The pandemic is not just challenging us personally but also financially. With many companies going out of business, it is no surprise that unemployment continues to rise, creating financial hardships for many. To help address the crisis, The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020.  Among the provisions in the CARES Act, several impact retirement accounts directly.


Elimination of Required Minimum Distributions (RMDs) for this year.

The CARES Act allows you to skip your RMD in 2020 if you want. If you don’t need the money this year, the government isn’t forcing your hand. You’re in charge. This comes on top of previously approved changes for 2020 that move the age when RMDs start from 70-1/2 to 72 (SECURE Act.) 

Eliminating required withdrawals for 2020 applies to all who are affected by RMDs. You do not need to meet any additional special circumstances or conditions.

Withdrawal from an IRA or Loan from 401(k)

The Act also includes provisions that make it easier for people to take a distribution from their retirement account for Coronavirus-related hardships. To qualify or take advantage of this provision, you must have a COVID-19 related hardship or reason.

Those reasons are:

  • The account owner was diagnosed with COVID-19,
  • The account owner’s spouse or dependent has been diagnosed with COVID-19,
  • The account owner experiences adverse financial consequences because of a layoff, furlough, reduction in hours, or inability to work due to COVID-19, or
  • Lack of childcare because of COVID-19


Specifically, you will be allowed to withdraw up to $100,000 from a retirement account, any time between Jan. 1 and Dec. 31, 2020, and avoid the normal withdrawal penalty that would apply to anyone under age 59 ½ . The Act applies retroactively to withdrawals that occurred since Jan. 1, 2020.  However, you will have to pay normal income taxes on the withdrawal. The CARES Act allows you to spread the income over a three-year period (2020, 21 and 22) to reduce the impact of the entire lump sum inflating your 2020 income, creating an increased tax burden. 

For example, if you took a withdrawal of $90,000 in 2020, you could report $30,000 income on your federal income tax return for each of 2020, 2021, and 2022, spreading out the total taxes due over the 3 years.

It’s important to know that if you have more than one retirement account – a 401k and an IRA, for example –the $100,000 limit applies to all your retirement accounts in total, not individually.


Paying Back the Withdrawal or Loan

You’re allowed to pay these withdrawals back into your retirement plan over the next three years, if you choose to. Again, it’s your option. The repayments will not count toward the annual maximum contribution limit the year you repay them. Even if taxes were paid on the withdrawals in 2020 and 2021, and you decide to put the entire amount back in the retirement account in 2022, provisions allow you to amend your previous tax filings to recoup taxes paid in those years.  

These special withdrawal rules apply to many retirement plans, including IRAs, 401k, 403(a) and 403(b), and government 457 deferred compensation plans.

It’s important to note that this early-withdrawal provision allows an employer or plan administrator to adopt these changes to their plans or 401k, but they are not required to do it. The changes are at the employer’s option.

However, even if an employer does not identify a specific withdrawal or a loan from a plan as “coronavirus-related” an individual may still report it as coronavirus-related if they know they meet the requirements listed above.


Taking a Coronavirus Related Distribution, Withdrawal, Or Loan from your Self-Directed IRA.

Most self-directed IRA investors hold alternative assets like real estate in their retirement plans. So how would one take a distribution or withdrawal from a self-directed IRA? This is a question that has come up fairly frequently in the past months.

You can take a distribution from an alternative investment (if you qualify per list above) and not pay the early withdrawal penalty. All COVID related withdrawals waive the 10% penalty regardless if the distribution is cash, real estate, or another type of investment in a self-directed IRA. These are called in-kind distributions.


So how does this work?

For our example let's say your alternative asset is an investment in real estate.

  • First you will need to get the fair market value of the investment. An appraisal of the real estate to be distributed is required. This must be performed by a third-party.
  • You need to complete a Fair Market Valuation (FMV) Form for the real estate being distributed.
  • You need to complete a Distribution Form. If you are only partially distributing the property, this must be detailed in the appropriate section. For specific information on partial or full distributions of real estate, please see our article on "How to Take a Distribution or RMD from your Real Estate IRA."
  • After IRAR has processed the in-kind distribution, the property would need to be reregistered in your individual name and taken out of your IRA if you distributed the whole value of the property.
  • The reregistration document for the property (i.e. an un-recorded deed) must clearly show (full or partial) ownership of the asset changing from “IRAR Trust FBO” to your name.

Once the property is in your name, you can do whatever you want with it. You could rent it and collect the monthly rent to help with your personal cash flow. You could move into it and save the monthly rent payment you are currently paying. There are several possibilities depending on your specific situation.

The IRS hasn’t issued specific guidance on rollover of assets (moving the exact same asset back to the IRA), but following the cash distribution guidelines in this article, the same property would need to be put back into the IRA within the 3 year time frame if you want to avoid paying income taxes on the distribution. This would work like any current in-kind distribution, except you have 3 years to complete the rollover instead of 60 days.

Since the valuations will likely change from the time of the distribution to when the property is put back or rolled over, you should keep all valuations received. The IRS form 8915-E, Qualified Disaster Retirement Plan Distributions and Repayments, which  the IRS will release by year end will probably have questions that you will need to answer regarding the distribution or withdrawal.

Remember that the distribution is taxed as income. Only the 10% penalty is waived for COVID related distributions. If you do not qualify for the distribution (per requirements listed above), or the amount exceeds $100,000 then the distribution would be subject to the 10% penalty based on the fair market value on the date of the distribution. 

To summarize, here are the things to think about when considering an IRA withdrawal or distribution:


  • The withdrawal does not have to be repaid
  • There is no 10% early withdrawal penalty
  • The Taxable income can be spread out and paid over three years


  • The distribution is taxable income
  • You reduce the savings allocated for retirement


As the COVID-19 crisis continues to unfold and we find ways to overcome it, many people will continue to look for solutions to deal with the financial impacts the virus has caused. This might mean accessing retirement funds or assets that you’ve been counting on for retirement. Feel empowered that you are doing what is necessary to keep you and your loved ones safe.

When self-directed retirement questions arise, also know that we are here to answer them for you. There's a lot of unknowns in the financial industry right now but know that IRAR continues to be here for you. You can count on us as you continue to self-direct your retirement and make adjustments to your daily lives. Stay healthy.


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