Coronavirus prompts government to loosen rules on tapping retirement savings (2024)

The CARES Act, the legislation just signed into law by President Donald Trump, contains plenty of provisions for those saving for and living in retirement. But experts say those who can take advantage of the new law have lots to consider.

The law temporarily loosens the rules on hardship distributions from retirement accounts, giving people affected by the crisis access of up to $100,000 of their retirement savings without the usual10% penalty.

The law also doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. IRAs don’t permit loans.

Your money is important:Money advice delivered right to your inbox. Sign up her

The new rules apply to a whole range of people, including those who have lost a job because of the pandemic, those suffering fromCOVID-19 orwho havea spouse with the virus.

Coronavirus prompts government to loosen rules on tapping retirement savings (1)

Your Money questions answered:Your coronavirus money questions, answered: How much unemployment money can I get? Which companies are hiring?

Saving money on groceries:Coupons, sale items, grow your own: Here are 10 ways to trim your monthly grocery bill

If your emergency savings fund is running low, it may make sense for you to use your 401(k) to ride out the COVID-19 pandemic, says Keith Whitcomb, the director of analytics at Perspective Partners. “The CARES Act is designed to enhance this financial alternative,” he says.

Is the money worththe disruption?

While the new law provides more options for people who are struggling financially, think carefully before acting.

Having to sell investments at a much lower pricein the COVID-19-induced stock market sell-offcan knock your 401(k) out as a potential source of funds, says Whitcomb. “This is true regardless of whether you borrow or take a hardship withdrawal from your account,” he says. “However, if your 401(k) has assets in cash or short-term bonds that have not been affected by the market decline, it may make sense to sell those investments in order to generate cash.”

Also, disrupting the accumulation of 401(k) assets with loans and hardship withdrawals is generally discouraged. “However, if a 401(k) withdrawal enables you to lower your current payments, refinance at a lower interest rate, or eliminate debt, the net result can strengthen your financial circ*mstances while simultaneously helping you pay your bills,” says Whitcomb.

Whitcomb also notes that the COVID-19 crisis has destabilized the job market as businesses close to stop the spread of the potentially deadly virus. “This can factor into your decision because if you leave or lose your job when you have a 401(k) loan, it must be paid in full by that year’s tax return deadline,” he says. “With some exceptions, you would normally pay income tax and a 10% penalty on any outstanding balance. However, the CARES Act eliminates the penalty, making the amount subject only to income tax.”

Remember, says Whitcomb, even with the help of the CARES Act, hardship withdrawals from your 401(k) will still be considered as ordinary income for tax purposes. “But if you are backfilling lost wages from a layoff, your tax bill may end up being about the same as a ‘normal’ year,” he says.

Others also note that waiving the 10% early withdrawal penalty will be helpful to many retirement account owners. “It’s welcome to people who have no other resources but to touch retirement to provide the temporary financial relief,” says Rose Swanger, a certified financial planner with Advice Finance. “As old sayings goes, bills do not stop coming just because one is sick or out of job.”

Here's one tactic to consider if you intend to take a distribution. Sell the fixed income portion of your portfolio. That way you leave your stocks “intact to participate in the recovery when it happens,” says Charles Sachs, a certified financial planner with Kaufman Rossin Wealth.

Waiver of 2020 RMDs

For retirees and owners of inherited IRAs, the law suspends for 2020 the required minimum distributions (RMDs) the government requires most people to take from tax-deferred 401(k)s and individual retirement accounts (IRAs) starting at either age 70½ or age 72.

And this can be helpful to many retirement account owners. Why? An RMD is calculated for each account by dividing the prior Dec. 31 balance of that IRA or retirement plan account by a life expectancy factor. “Had we used that to calculate the RMD, every retiree will have a higher inflated amount than what they see now on paper,” says Swanger. “By skipping one year, it helps retirees recuperate investment as well as minimize the tax impact.”

For his part, Alex Offerman, a certified financial planner with Model Wealth, says the waiving of RMDs gives account owners a “free year” of tax planning. “This free year gives them room to complete Roth IRA conversions that otherwise may not be prudent for them to complete,” he says. “Especially coupled with the lower tax rates from the Tax Cuts and Jobs Act of 2018.”

Others agree. “The elimination of RMD's makes Roth conversions even more appealing for some folks,” says Rob Greenman, a certified financial planner with Vista Capital Partners. “Folks who had planned on having a certain amount of their adjusted gross income coming from an RMD just found themselves some additional wiggle room in certain brackets to do some additional Roth conversion amount.”

A Roth IRA conversion is the tactic of distributing some or all of your funds from a traditional IRA into a Roth IRA. The distribution is taxed as ordinary income.

Robert Powell is the editor of TheStreet’s Retirement Daily www.retirement.thestreet.com and contributes regularly to USA TODAY. Got questions about money? Email Bob at rpowell@allthingsretirement.com.

Coronavirus prompts government to loosen rules on tapping retirement savings (2024)
Top Articles
Moulin Rouge - Paris Attractions
Sir Lancelot (mythology)
Bon plan – Le smartphone Motorola Edge 50 Fusion "4 étoiles" à 339,99 €
Harry Potter Magic Awakened best cards tier list – July 2023
Immobiliare di Felice| Appartamento | Appartamento in vendita Porto San
Nosetf
Barber King Bargain Shop Tulsa Photos
FREE Houses! All You Have to Do Is Move Them. - CIRCA Old Houses
Poochies Liquor Store
On Trigger Enter Unity
Real Estate Transfers Erie Pa
Apple Nails & Spa, 3429 Toringdon Way, Charlotte, Reviews and Appointments
Publix In San Antonio Texas
Ar Kendrithyst
Wayne State Dean's List
Stephjc Forum
Bakkt Theater Purse Policy
Evil Dead Rise Showtimes Near Cinemark Movies 10
Xxc Renegade 1000 Xxc Price In India Price
80 Maiden Lane Ny Ny 10038 Directions
Tani Ahrefs
Midsommar 123 Movies
Winnie The Pooh Sewing Meme
Cookie Clicker The Advanced Method
Scrap Metal Prices in Indiana, Pennsylvania Scrap Price Index,United States Scrap Yards
Horseware Deken Amigo Bravo 100gr Donkerblauw - 130/183 | bol
2024 Chevrolet Traverse First Drive Review: Zaddy Looks, Dad-Bod Strength, Sugar Daddy Amenities
Shauna's Art Studio Laurel Mississippi
Ret Paladin Phase 2 Bis Wotlk
Author T. Jefferson Parker
Marukai Honolulu Weekly Ads
Stick Tongue Out Gif
Better Health Solutions Bridal Package
Huadu Cn Fedex
Kleen Krete Concrete Remover 1 Gal Liquid 32110
Patient Portal Bayfront
Champaign County Mugshots 2023
Section 212 Metlife Stadium
Brooklyn Park City Hall
How to Watch Age-Restricted YouTube Videos Without Signing In
Keck Healthstream
Boostmaster Lin Yupoo
Kristy Althaus Kansas
Ces 2023 Badge Pickup
Bonbast قیمت ارز
Cibo Tx International Kitchen Schertz Menu
Kingdom Tattoo Ithaca Mi
Busted Newspaper Zapata Tx
Hurst Scott Funeral Home Obituaries Richlands Virginia
Richard Grieve Judge Judy
Ladyva Is She Married
Latest Posts
Article information

Author: Fredrick Kertzmann

Last Updated:

Views: 5929

Rating: 4.6 / 5 (46 voted)

Reviews: 93% of readers found this page helpful

Author information

Name: Fredrick Kertzmann

Birthday: 2000-04-29

Address: Apt. 203 613 Huels Gateway, Ralphtown, LA 40204

Phone: +2135150832870

Job: Regional Design Producer

Hobby: Nordic skating, Lacemaking, Mountain biking, Rowing, Gardening, Water sports, role-playing games

Introduction: My name is Fredrick Kertzmann, I am a gleaming, encouraging, inexpensive, thankful, tender, quaint, precious person who loves writing and wants to share my knowledge and understanding with you.