Generally, taxpayers who take distributions from tax-favored retirement accounts before age 59½ must pay a 10% tax penalty. They must also include those funds in their taxable income for the year. Thanks to the CARES Act, for those affected by the COVID-19 virus, the 10% penalty is waived on distributions of up to $100,000 taken between Jan. 1, 2020 and Dec. 30, 2020 from eligible retirement plans. Also, this type of distribution can be included in income over a three-year period, instead of in the year of distribution. Taxpayers can repay the funds to the plan or IRA within three years and effectively undo the tax consequences of the distribution.
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