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Photograph by Alejandro Barba
The Cares Act, which lawmakers drafted quickly amid the Covid-19 crisis, may have created a peculiar situation where Americans could make emergency withdrawals from their retirement accounts and then use them to fund Roth IRAs.
So reports InvestmentNews. But the publication also writes that financial advisors are raising red flags to anyone thinking of taking advantage of the apparent loophole in the legislation.
Under the act, people affected physically or financially from the pandemic can take penalty-free withdrawals up to $100,000 from qualified retirement plans. The act also expands plan loans to $100,000.
Theoretically, that suggests a person could take a distribution and then put it in a Roth IRA. Such a transfer would allow him or her to take advantage of tax breaks: Taxes on the distribution could be paid over three years.
But advisors say such a move would violate the spirit of the law and be risky to boot. “I actually think it is very easy to draw up an IRS reading where this will not work,” Jamie Hopkins, director of retirement research at Carson Group, tells InvestmentNews. “I am recommending against this strategy as I think it carries a decent amount of risk.”
–Ross Snel
