CONGRESS MAY LET YOU USE RETIREMENT
Congress may let you use retirement. You may soon be able to withdraw up to $100,000 from your 401(k) retirement plan amid the coronavirus outbreak. Just make sure you read the fine print before you jump in. The Senate is currently negotiating over a package of COVID-19 stimulus measures, one of which allows savers to take emergency withdrawals–known as hardship distributions–of up to $100,000 from their retirement plans. Savers under age 59 and a half would be able to tap their 401(k) and 403(b) money without the 10% early withdrawal penalty. This would also apply to individual retirement accounts. The proposed legislation also would issue families rebate checks of $1200 per individual and $500 per child, as well as suspend payroll taxes for employers. If Congress goes ahead using your savings for an emergency, proceed with caution. You may be doing more harm than good. “People play up the relief like it’s a freebie,” said Ed Slott, CPA and founder of ED Slott and CO. in Rockville Centre, N.Y. “You’re better off using anything else before using your retirement savings.” Congress may let you use retirement.
Normally, if you were to take money from your retirement plan, you would be subject to a 10% penalty. If your under age 59 and a half, along with income taxes on the amount your withdrawing. The proposal gives you the opportunity to pay the taxes over the course of three years. You can repay the amount that you pulled from your retirement account over that time. These distributions may be taken by people who themselves are diagnosed with coronavirus, or whose spouse or dependent has been diagnosed with COVID-19, or who experience adverse financial consequences from being quarantined, laid off or furloughed. We don’t know what the end result of the coronavirus relief bill will include, yet experts suggest moving slowly if the proposed hardship withdrawal provision becomes a reality. Remember, hardship withdrawals are still subject to income taxes. That’s where alot of taxpayers make major mistakes and end up owing taxes, due to not withholding enough.