Millions of Americans are struggling financially due to the ongoing coronavirus pandemic.
Another option people may want to consider is whether to withdraw funds from their 401(k) savings plan.
Included in the recently passed CARES Act is a provision which allows anyone affected by COVID-19 to withdraw up to $100,000 without a penalty from their IRA or 401(k), regardless of how old they are, reported the Motley Fool.
Under regular circumstances, you would be charged a 10% fee for withdrawing money from either account before the age of 59 ½.
Yet another option to consider is taking a loan out against your 401(k). Under the CARES Act, loan limits have been raised from $50,000, or up to 50% of your vested account balance, to $100,000, or up to 100% of your vested account balance. While you normally need to pay back the loans within five years, the CARES Act gives Americans an additional year to recoup the funds.
According to USA Today, wealth experts advise those who have recently been furloughed, but expect to return to work in the near future, to consider taking out a loan to help during the downturn.
They also believe Americans should explore all other options, like emergency savings and loan refinancing, before dipping into their retirement savings.
“Once you pull funds out of your retirement accounts, it could take a while to replenish and it could be quite detrimental to long term savings goals,” Tim Bray, senior portfolio manager at GuideStone Capital Management told the outlet.
“People should cut expenses and take advantage of the emergency checks coming from the government’s stimulus package before withdrawing money from their 401(k)s.”
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