10% early withdrawal under cares act, is there a limit based on amount lost in wages

[jaftax]

client was out of work for four weeks and collected unemployment of about $3000, he took out $95,000 from his 401(k), that was clearly not all used for hardship. He did qualify for the early withdrawal penalty to be waived because he was furloughed, but can I waive the entire $9500 penalty.  He clearly only lost about $3000 of income during the time he was off. I cannot find anything on the IRS website other than it says you can waive the penalty on up to $100,000 of withdrawals . I could not find anything about comparing what wages were lost to the amount a person took out of their 401(k).  can I waive the entire $9500 penalty?

[Just-Lisa-Now-]

Ive seen nothing that says the amount you took from your retirement has to equal your losses due to Covid in order to waive the penalty.   Thats how I was expecting it to work when I first heard about it, but apparently it was a free for all for people to grab a chunk of their retirement for whatever theyd like and pay no penalty.

[IRonMaN]

The exception only applies to COVID related issues.  If you ask some of the investment people, any withdrawals in 2020 are free for the taking.  Then it goes down to the ethical side of the equation.  Why did the client pull the money out?  Did they pull it out because they weren't working and wanted to pay off their mortgage because of the uncertainty?  Or did they pull it out because the next door neighbor bought some real cool jet skis and they wanted to keep pace with the neighbors?  As the old saying goes ------------- let your conscience be your guide.

[BobKamman]

Facts and circumstances.  Did he withdraw the 95K before, during or after the furlough?  Is he in an occupation or high-risk group where he would have a reasonable fear of infection, hospitalization, and being placed on a ventilator for a month while not able to manage his finances if he survived to pay the bill?  What did he do with the money, anyway?

Interesting question.  This is what happens when the law is written in two weeks and the meaning is left to decide a year later.