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Helene L. Taylor

California Family Law Consulting Attorney & Legal Strategist

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Can you withdraw $200,000 penalty-free from a retirement account under the CARES Act in 2020?

Helene L Taylor

In 2020, the CARES Act permitted anyone under the age of fifty-nine and a half to withdraw up to $100,000 from an IRA or other defined employer plans like a 401(k), 403(b), or 457(b) without incurring a ten percent early withdrawal penalty (retroactive to January 1, 2020 if they suffered qualified losses because of COVID.) A person must have received the distribution in 2020, and paid personal income taxes on the funds, but can spread the tax payments evenly, or replenish the account over three years. (It was okay to borrow or permanently withdraw the funds.)

Being able to access $100,000 and not pay a $10,000 penalty from the distribution may be a godsend to most. But the net might not go far enough for those with high burn rates fueled by multi-million dollar mortgaged homes, car loans, kids, private school tuitions, stalled careers, and shuttered businesses, or separated couples with single (and historic) primary breadwinners and homemakers with two established homes.

Being able to access $200,000, however, may give families in San Francisco, Santa Clara, Los Angeles, and beyond the cash cushion they need to stay afloat.

But how can you withdraw $200,000 penalty-free from one spouse or partner’s IRA or retirement plan under the CARES Act?

In short, unless the federal or state government provides otherwise, if you and your spouse or partner agree, one spouse or partner can withdraw $100,000 from the retirement account or plan and rollover another $100,000 into the second spouse or partner’s IRA, and then he/she/they can withdraw $100,000 from his/her/their retirement account.

What if you don’t have a global agreement yet or are uncertain about how you’ll characterize the distribution (e.g., division of assets, an advance of support, reimbursement, or a loan?)

In California, you can make and execute multiple separate legally binding agreements or judgments during the course of a single separation or dissolution process. But you must expressly state within the agreement and Judgment that it’s not comprehensive, and you reserve your rights and the court’s ability (jurisdiction) to resolve all related and other outstanding issues in the future.

How do you transfer retirement funds from one spouse or partner to the other tax-free during divorce or separation?

In essence, you must follow the federal regulations and have the plan administrator or financial institution rollover the funds or assets (i.e., stock) from the first account into the second account. The party may not withdraw and transfer the funds; the bank, brokerage, or retirement plan must handle the transfer.

A failure to comply with requirements will lead to penalties and taxation of the second $100,000 withdrawal. So proceed with caution. And, please speak to professionals like a Certified Financial Planner, tax lawyer, and family lawyer to understand all options available under the CARES Act before you decide to withdraw funds from your retirement accounts.

Here is an abbreviated “how to” roll over retirement funds during a Legal Separation or Dissolution of Marriage or Domestic Partnership in California:

  1. File and serve a Petition for Legal Separation or Dissolution of Marriage or a Domestic Partnership, and Joinder of the retirement plan (if required)
  2. Prepare and exchange Preliminary Declarations of Disclosures
  3. Draft a Stipulated Judgment that states the parties agree to roll over $100,000 from one partner or spouse’s retirement assets to the other
  4. Prepare and execute California Judicial Council forms necessary to process the Judgment
  5. Open or identify the recipient spouse or partner’s IRA
  6. Prepare and submit a Domestic Relations Order to the retirement plan administrators for approval, revise if necessary, and execute
  7. Submit Judgment, Agreement, and DRO to the court or a private judge for review, signature, and filing
  8. Complete the financial institutions’ requisite retirement transfer forms, and submit it or the DRO and the Judgment for execution
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California Family Law, Divorce coronavirus

Helene L Taylor

Helene L. Taylor, California Family Law Consulting Attorney, Legal Strategist, Peace Activist

It’s easy to see divorce as a painful path you must walk alone without the expertise of a lawyer because you don’t know who to trust. But compassionate competent  advice is available and empowers you to solve salient problems consciously.

I’m Helene L. Taylor. I’m a former San Francisco trial lawyer who has, for 27 years, worked with the most formidable attorneys, judges, and experts in Hawaii and California. I’ve helped over a thousand people mediate, litigate, and resolve contentious complex divorce issues in Marin, OC, Contra Costa, San Mateo, Napa, LA, Silicon Valley, and beyond. I’m also divorced.

If you want trustworthy legal advice and strategies you can use to navigate the legal system and negotiate settlement agreements, Speak to Me.

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"Helene understands human behavior, and has a gift for deescalating conflict. I felt safe with Helene representing me during a complicated divorce. We've been friends ever since my divorce sixteen years ago." ~Toni Wroolie, PhD, Clinical Associate Professor, Psychiatry, Stanford University Medicine

"When I realized that I was getting a divorce I knew I needed to find a guide. She’d need to be smart, soulful, kind, and know her way around the legal system like nobody’s business. I loved working with Helene because she covered all of those bases beautifully, and she made it possible for me to move through my divorce with peace of mind and confidence" ~Laurie Wagner, 27powers.org

"Helene gently challenged me to consider which outcome would be best for my daughter and I, and gave me the courage and consistency I needed to pursue it successfully. I learned so much about myself as a result. Helene's is a compassionate and strategic approach. On a personal level, Helene is exceptionally positive and inspiring. I feel blessed to have received Helene's help through a challenging divorce during the pandemic." ~NC, Mother, Los Angeles Small Business Owner
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