We truly hope that everyone is holding up as well as can be expected as the COVID-19 pandemic continues. While there is still a lot of uncertainty about the situation, we want to provide you with some positive news!
What’s going on?
According to the U.S. Labor Department, the number of Americans who have filed for unemployment is 31.8 million. And, the American economy has been thrown into its worst economic downturn since the Great Depression. With many individuals left desperate for money, many are tapping into their 401(k)s and IRAs.
So, where is the positive news?
The Coronavirus Aid, Relief and Economic Security (CARES) Act has been enacted to help ease retirement account rules. CARE aims to help people deal with the unparalleled financial fallout by eliminating tax penalties on certain early withdrawals and relax rules on loans you can take from some types of accounts.
For instance, the 10 percent early withdrawal penalty for being under the age of 59 ½ is now waived for distributions taken in the calendar year 2020. For a married couple, each with their own individual accounts, this may translate into the ability to withdraw up to a total of $400,000 through a combination of loans and withdrawals.
Tell me more!
You will still have to pay income tax on the withdrawal amount but you are now permitted three years to pay these taxes. And, if you land a new job and find that your financial situation has changed, you can also redeposit the money within three years instead of the usual 60 days.
Regarding loans, you can now, until September 23, borrow 100 percent of your account balance up to $100,000.
So, who qualifies?
The legislation restricts relief to qualified participants with a valid COVID-19 related reason for early access to retirement funds such as:
- If you, a spouse OR a dependent tested positive for Covid-19
- If you have had adverse financial consequences, including
- Experiencing a layoff, furlough, reduction in hours, or inability to work due to COVID-19 or lack of childcare because of COVID-19.
- Having a job offer rescinded or a job start date delayed due to COVID-19
- Experiencing adverse financial consequences due to an individual or the individual’s spouse’s finances being affected due to COVID-19
- If you or your spouse own a business and had to close or reduce the hours of the business due to COVID-19
What’s the catch?
This financial option should be used only if you have no other financial alternative. While there are no restrictions on how you can use the money, it’s not the time to cash in your retirement funds for a fancy car or fast boat.
Just give me the highlights…
If you have hit a financial bump such as being laid off, business closed, etc., there are other ways to tap into your funds that you may not be aware of.
There is always a positive to everything, Bernicker, Eiger & Lang can help you find it. Just ask.