Here’s a friendly reminder that you can withdraw from your retirement accounts without penalties, under the new COVID-19 law. New rules on making loans from your 401(k)s will also be available, and some folks will avoid Required Minimum Distributions (RMDs) that otherwise would have forced taxable withdrawals.
See the CNBC article explaining the COVID-19 bill allows penalty-free access to early withdrawals from retirement accounts.
Similar to changes that have been done for retirement accounts during previous disasters; these current changes are far more intense than in the past. The numbers of folks filing for unemployment increases the likelihood people will be tapping their retirement accounts for living expenses.
One provision in the bill allows account holders of any age to take as much as $100,000 from their retirement account without an early withdrawal penalty. If the money is put back in the account within three years, there are no taxes. If the money is not put back in he time period the taxes can be paid over the three years. The law specifies that the withdrawal must be a “coronavirus-related distribution.”
Individuals who test positive for COVID-19, along with anyone who experiences adverse financial consequences because of the disease including being unable to find work or childcare, are allowed to make these penalty-free withdrawals.
The bill also eases your ability to borrow money from your 401(k) account, raising the limit on these loans from $50,000 to $100,000 and the repayment dates for these loans are extended for a year.
The rules requiring retirees in their early 70s to start making taxable withdrawals are suspended for a time period.
The bottom line is that you should think long and hard about withdrawing retirement funds and this should only be a last resort. Once the money is spent, it’s not able to grow tax deferred.
Reference: CNBC – “Americans will soon be able to take penalty-free withdrawals from their 401(k)s, but experts say think twice about using retirement savings” (March 26, 2020)