Should I Eat Those Oreos? | CARES Act


By Eric Ellis | March 30, 2020 | CARES Act


Have you ever eaten an entire sleeve of Oreos and justified it because you were going to go workout later that afternoon?

No? Nobody… Just me then? Human behavior is complicated.

On Friday the President signed the CARES Act¹. You may be wondering how this affects your financial planning and, if it does, is using the new withdrawal options the right thing to do.

Even with the best of intentions, many people will find putting their resources back may not happen. Whether it is due to unforeseeable events, bad luck, or just plain forgetfulness. This is one of the reasons that using these temporary withdrawal options may not be in your best interest.

One of our concerns is that many people who use these options may do so at the expense of their future self.

Does the CARES Act allow for withdraws from retirement accounts? It does, but there are a lot of details you will want to know before determining whether or not it is a good idea for you.

Withdrawals Exempted from Penalties

CARES Act allows up to $100,000 to be withdrawn from retirement plans in 2020 as long as they are Coronavirus-related. This means you must be directly impacted by the Coronavirus. Don’t worry at this point we are all impacted and you will likely qualify. The CARES Act defines this as:

  • Diagnosed with COVID-19 or have a spouse or dependent diagnosed with COVID-19.
  • Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or reduced work hours due to COVID-19.
  • Unable to work due to lack of childcare as a result of COVID-19.
  • Own a business that closed or operated under reduced hours because of COVID-19.

For those that qualify the list below are possible tax benefits made available:

  • Exempt from the 10% early withdrawal penalty.
  • Eligible to repay Coronavirus-related withdraws over 3 years.
  • Income tax may be spread over 3 years.

If you qualify you can take an early withdrawal from your retirement plan in 2020. If you want, you could return the amount withdrawn within 3 years which will exempt any taxes or penalties that would normally apply. While the early withdrawal penalty is waived, it’s important to remember for any amount you do not return income taxes do apply. To ease the burden of these taxes, the CARES Act allows you to spread them over the tax years of 2020, 2021, and 2022.

While the early withdrawal penalty is waived, it’s important to remember income taxes do apply to the amount you do not return.

Should I Take Advantage of This?

The short answer is: Maybe. We would encourage you to only consider this if you exhausted all of your options. You should contact your financial professional to determine what is best for your personal situation.

Kathy Ellis, CERTIFIED FINANCIAL PLANNER™ named to Forbes’ list of Best-in-State Wealth Advisors.

Ensure your financial advisor is a fiduciary and is required to put your interest above their own. Such as a CERTIFIED FINANCIAL PLANNER™ professional, like Kathy Ellis CFP®.

Use Your Emergency Reserves First

Emergency account. Rainy Day fund. Cash Reserves. Whatever you call it, times like these are why they are so important. This is one of the reasons we strongly encourage every person we work with to have an accessible amount of cash that is not invested. Often times recommending a backup to their reserves as well. Having these emergency funds can help reduce stress during difficult times when many others are panicking. This is an often-overlooked and underappreciated step in creating a financial plan but is an essential piece to make it successful. The purpose of your emergency fund is to be there during uncertain times. Using your emergency reserves allows your other resources to stay invested while your long-term, more growth-focused investments recover.

Explore Alternatives

What if you don’t have cash reserves? With interest rates back to historic lows, the amount of interest you would pay on borrowed money is likely less than the taxes, penalties, and missed opportunity cost from withdrawing assets from your retirement accounts. Reviewing your budget is a good idea during these times too. Making sacrifices is difficult. You have to feed your family and keep them safe. However, it is not the best time to buy a boat.

Making Up the Difference

Sally has $1 million invested in her retirement account. With the recent market activity, her underlying holdings are now priced at $750,000, down 25%. If Sally doesn’t withdraw any resources from her underlying positions, she will need to bounce back 33% to make it back to $1 million. However, if Sally withdraws the maximum amount of $100,000, her retirement account is now priced at $650,000. Which means her underlying holdings must recover 54% to make it back to Sally’s $1,000,000!

This example can illustrate just how damaging a withdraw from long-term investments can be with bad timing.

This is how a seemingly innocent withdraw can be a misstep that could take years to recover. Depending upon how close a person is to retirement, it might be a challenge they may not overcome.

Of course, there are some situations where it may make sense to use these options as a way to navigate through difficult times. We believe for everyone to make their best choice they need to be aware of all of the side-effects that could come as a result. What if you find yourself in a spot and you must take your resources out of retirement accounts, then what? Below are a few tips that could help you make it through and keeping your long-term resources directed to your goals.

If You Have to Withdraw Resources from Your Retirement Accounts

Start Small

The CARES Act doesn’t limit you on how many withdrawals you can make, only the dollar amount. By starting small you can address immediate needs and create some accountability for what you are using your resources for. Using your retirement to cover the electric bill or groceries is responsible. Using your retirement assets to buy a new video game is not.

Create a Plan

There is a lot of uncertainty right now. We don’t know if this will last another two weeks, two months, or longer. You can still create an outline of how you plan to return your withdrawals into your retirement accounts. It may be a challenge to create a budget depending on how your income is affected. One thing is for sure, creating a plan is the first step to making sure it will happen.

Ask for Accountability

Once you’ve created a plan, share it. Share it with your husband or your wife. Ask them to help make sure this happens. Include your financial professionals, your financial advisor, your CPA, and/or your tax preparer. Let them know about your intentions of putting your resources back. Lastly, ask them to help make sure you do it. Fair warning, you likely will not be thrilled when they remind you. Just know they genuinely want what is best for you.


Times are tough. It is easy to make rushed decisions that may not be in your best long-term interest during stressful situations. If you are faced with a difficult decision, it is important to take your time, look at all your alternatives, and consider the long-term consequences. Your future self will thank you.

Retire Confident,


Eric Ellis
Financial Advisor
Ellis & Company Retirement Strategists


¹Coronavirus Aid, Relief, and Economic Security Act or CARES Act
The opinions expressed here are those of Eric Ellis and not necessarily Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All investing involves risks, including the possible loss of the principal amount invested. No investment strategy can guarantee your objectives will be met. The S&P 500 is an unmanaged index of 500 widely held stocks that are generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly.
Ellis & Company Retirement Strategists, Kathy Ellis, CFP® professional CERTIFIED FINANCIAL PLANNER™, professional Raymond James Financial Services, Inc. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Raymond James, Ellis & Company Retirement Strategists, and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

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