One advantage of the CARES Act has been largely overlooked in the discussion around the SBA Stimulus and PPP money. Restaurant Buyers can use retirement savings penalty free.
The Restaurant Brokers at We Sell Restaurants are seeing our Restaurant Buyers take advantage of one provision of the CARES Act that has gotten a small amount of press. The CARES Act legislation, in addition to providing incentives through the SBA for lending (that end in less than a week!), also allows eligible participants in certain tax-advantaged retirement plans to take an early distribution of up to $100,000 during calendar year 2020 without paying the 10% penalty tax.
The benefit for restaurant buyers is that you are able to finance your restaurant purchase penalty free with your retirement savings. For many, the stock market has been very solid and performed well over the past four to five years. Now, you can use up to $100,000 of your retirement without penalty as long as they are using it as a down payment for an SBA 7a acquisition loan.
The details of the CARES Act for restaurant buyers are this. First, Use any one of the follow tax-advantaged retirement plans including your 401(k), 403(b) 457 or Traditional IRA.
Secondly, take an early distribution of up to $100,000 during the calendar year 2020 without paying the 10% penalty tax the law requires on most withdrawals if you are under 59 and a half.
The total you can withdraw is $100,000, per person, no matter how many accounts you have.
In addition to waiver of the 10% penalty, the CARES Act also suspends the mandatory 20% tax withholding requirement that normally applies to early distributions from a 401(k) or other workplace retirement plans.
In total, there is no withholding requirement on early withdrawals from IRAs. (Source: CARES Act SEC. 2202. SPECIAL RULES FOR USE OF RETIREMENT FUNDS)
Lastly, confirm you can attest to the requirements. What are the requirements? You must be able to show you were adversely affected by COVID19.
This can include being laid off, cut in hours, being quarantined or furloughed. You can also state you experienced negative financial consequences if you were unable to work as a result of not being able to obtain childcare. If you had to close or reduce hours of a business you own or operate, this also qualifies and lastly, you are a spouse could have been diagnosed with COVID19.
There is no lengthy paperwork to affirm this. The restaurant buyer just needs to provide a written statement stating that one of these conditions were met. SBA lender does not need the statement but the account manager for your retirement funds may.
For those who are facing unemployment and have not quickly gone back to work, this is an excellent way to redirect assets that are normally unavailable and redeploy these funds for a business that is income production.
This little known benefit for restaurant buyers is another win from the CARES Act but the clock is ticking. This benefit is only available through calendar year 2020 so you have until December 31, 2020 to pull the trigger.
If you have questions about this program, consult your financial advisor or contact the Restaurant Brokers at We Sell Restaurants for more information and resources to assist you in buying a restaurant.
Our restaurants for sale that qualify for SBA lending can be found at this link.