In order to comply with the internationally applicable GDPR - and other regulations, no IP address or user account originating in your geographic location will be accepted. Once some of the shock and trauma of the moment wears off, I think you’ll see your financial life is not permanently ruined. We couldn’t wait any longer, so I took out the $75,000. Did I just watch my financial life end? Your wife may be eligible for state unemployment, too, if she met the earnings threshold for the state of Texas. © 2021 USA TODAY, a division of Gannett Satellite Information Network, LLC. These coronavirus-related distributions aren't subject to the 10% additional tax that generally applies to distributions made before reaching age 59 and a half, but they are still subject to regular tax. COVID-19 Related Tax Savings on Early Withdrawals from your IRA, 401K or 403B. This website is using a security service to protect itself from online attacks. Besides the many medical issues created by the pandemic, it also created economic hardships for many Americans. That’s why you made the bold decision to withdraw $75,000 from your 401(k). The CARES Act allows no-penalty withdrawals, but experts advise against it, How to break into your retirement piggy bank in the coronavirus crisis, Your California Privacy Rights/Privacy Policy. Your spouse or … Your spouse or a dependent has been diagnosed with SARS-CoV-2 by a CDC approved test. The new rules to take a withdrawal from your retirement will apply to you, if: You have been diagnosed with SARS-CoV-2 (also called COVID-19) by a CDC approved test. I haven’t received unemployment yet, nor has my wife. Coronavirus aid law lets you more easily tap retirement savings. Anyone can take up to $100,000 from their account — through a loan […] The shock of finding yourself with no income is traumatizing, and the longer it drags on, the more catastrophic it feels. We were already behind on some bills, and then our paychecks went away. You absolutely did not just watch your financial life end, but you’re not alone in feeling that way. The maximum unemployment benefit in Texas is $521 per week and you will also receive the $600/week enhancement made possible through the CARES Act. Requested URL: www.thepennyhoarder.com/retirement/using-401k-for-coronavirus/, User-Agent: Mozilla/5.0 (Windows NT 6.3; Win64; x64) AppleWebKit/537.36 (KHTML, like Gecko) Chrome/83.0.4103.116 Safari/537.36. ... One of those benefits is the ability to withdraw money from your 401(k), 403(b), or IRA without facing penalties. The COVID-19 relief bill waives the standard 10% penalty for early retirement plan withdrawals and doubles the maximum allowable loan amount. The CARES Act allows no-penalty withdrawals, but experts advise against it, Breaking into savings: How to break into your retirement piggy bank in the coronavirus crisis. Read or Share this story: https://www.usatoday.com/story/money/2020/05/03/coronavirus-draining-401-k-wont-end-your-financial-life/3048762001/, Get money advice like this delivered right to your inbox. Which is exactly what will happen if you’re not careful. There’s no doubt, unemployment benefits are taking longer to get in the hands of people than we all want. This is particularly important if you’re considering 401k withdrawals during coronavirus. That's because you'll owe a 10% penalty on withdrawn funds. The next couple of years will certainly go differently than you assumed they would, but frankly, everyone is facing that same reality. Qualified individuals affected by COVID-19 may be able to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between January 1 and December 30, 2020. Not only must you deal with immediate challenges during this time, like the one you’re experiencing now, but you must also stay focused on three other vital factors: Long-term investing, cutting expenses and tax-planning. If you're under 59 1/2, a 401(k) withdrawal is normally a costly proposition. Ideally, if you’re able to find work again in the next few weeks, you can put the remaining money back into an IRA to lessen your tax burden. Coronavirus has created instability, but it’s important not to panic and don't lose your cool about your 401(k) either. Fortunately, all three of these factors are related to each other and are complementary to each other in the form of employer-sponsored retirement plans and/or IRAs. A link has been sent to your friend's email address. Should You Use This Coronavirus Retirement Loophole Before 2021? Save better, spend better: Get money advice like this delivered right to your inbox. Buzz60. The good news is, unemployment benefits are retroactive, which means you’ll receive benefits back-dated to the moment you filed. A4. A link has been posted to your Facebook feed. It will just go differently than you thought it would. Other large workplace 401(k) providers witnessed similar behavior. Do an IRA Rollover if Necessary. I’m 47 years old, made about $72,000/yr, and had $150,000 in my 401k. The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY. He has a free podcast: "Million Dollar Plan." Yes, going backward, $75,000 on your quest for retirement isn’t ideal, but coming up with $15,000 in tax money within the next three years is what will truly hurt. My wife worked part-time as a server at a high-end restaurant, but obviously that’s currently closed. Email him at AskPete@petetheplanner.com. Have a question for Pete the Planner? Here's everything you need to know. I’m 47 years old, made about $72,000/yr, and had $150,000 in my 401k. Experts typically advise against withdrawing money from your 401(k), but the fallout from the coronavirus crisis has left many people scrambling to pay their bills. It’s up to you to make the proper decisions over the next 20 years to ensure long-term success. Let friends in your social network know what you are reading about. I withdrew $75,000 from my 401(k) a couple of weeks ago because I was laid off. Over the last several weeks, millions of Americans have had to do what they never thought they would have to do. The coronavirus stimulus package waives 401k early withdrawal penalties, making it easier for Americans to access trillions of dollars in retirement accounts to stimulate the economy. Who is eligible for a coronavirus hardship 401(k) or IRA withdrawal? Answer: I’m very sorry this is happening to you, Barry. Workers can withdraw or borrow up to $100,000 from 401(k)s under new COVID-19 aid package. The keystone to the entire plan, whether you’re receiving unemployment benefits or you’re back working again, is to make sustainable spending cuts which can then be used to cut debt and more substantially fund your retirement plan. It took my entire adult life to save that much, how in the world will I ever be able to retire? The IRS released guidance on Friday which details new rules for individuals affected by Covid-19 to take a withdrawal from a 401 (k) plan or an individual retirement account. Peter Dunn is an author, speaker and radio host. The Coronavirus Aid, Relief, and Economic Security Act makes it easier to avoid penalties and spread out the taxes associated with withdrawals from retirement savings if you qualify. Q5. Do I have to pay the 10% additional tax on a coronavirus-related distribution from my retirement plan or IRA? Unfortunately, our website is currently unavailable in your area. Before COVID, early withdrawals from your retirement accounts came with stiff penalties. That’s my biggest concern for you. Dear Pete: I withdrew $75,000 from my 401(k) a couple of weeks ago because I was laid off. Download The CBS News App by Charles Eisenhart, CPA on January 22, 2021. While the CARES Act allows you to withdrawal up to $100,000 penalty free from your 401(k), you are still responsible for paying taxes on the money over the next three years. These three factors are always important, but when emergencies happen, they instantly seem unimportant. If you’re facing economic hardship tied to the coronavirus, you can tap your traditional retirement account, withdrawing up to $100,000 without the typical 10% penalty that typically applies to withdrawals before the age of 59 ½ (outside of certain exemptions). 2020 is a year that most of us will never forget. As hard as it is to do, you have to keep one eye on the distant future while still triaging the day-to-day financial challenges which pop-up along the way. But the decisions you make in the next couple of years will certainly determine whether you will have the sort of retirement you’ve always wanted. The last thing you need is to get back on your feet, only to get knocked back down with a substantial tax bill in the coming years. The CARES Act changed all of the rules about 401(k) withdrawals. COVID-19 Related Tax Savings on Early Withdrawals from your IRA, 401K or 403B. But obviously, it didn't come soon enough for some of the bill collectors figuratively beating down your door. Coronavirus hardship withdrawals allow qualified people to withdraw as much as $100,000 of their balances from 401 (k)s and IRAs, but these withdrawals aren’t available to everyone. If you have any questions or requests, please contact us at 727-317-5800. Retirement planners say only do this if necessary. Either way, she should still be covered by the federal benefit of $600/week. The CARES Act allows folks in need of money to withdraw from their 401ks with fewer penalties, but that doesn’t mean it’s a free-for-all, or that making 401k withdrawals is right for everyone. I’m married and have two teens. Your financial life isn’t over, but the decisions you make in the next couple of years will certainly determine whether you have the sort of retirement you’ve always dreamed of. If you started your career at around age 22, you’ve been in the workforce for roughly 25 years, and you’re likely to remain in the workforce for another 20-23 years. All this is to say, help is on the way. The Cares Act lets people of any age take up to $100,000 from their IRA or 401 (k) by Dec. 30 without a penalty. Sign up here. 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