New IRS Rules For Withdrawing Funds From Your 401k Account Due To Coronavirus

June 24, 2020

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More good news for those struggling financially in a COVID-19 world.  The IRS has announced the expansion of the temporary CARES Act provisions for withdrawing from your 401K retirement account without penalties. The IRS has expanded “coronavirus-related” purposes that allows you to withdraw up to $100,000 from your retirement account without the 10% early withdraw penalty. Previously, if you or your partner or dependent weren’t diagnosed with the coronavirus, your hardship had to be due to being quarantined, furloughed or laid off, having your hours reduced, or being unable to work due to lack of childcare. Now eligible reasons also include having your pay reduced, having a job offer rescinded, and having your job start date delayed. If your spouse or other household member has any of these things happen, you’re eligible to take funds from your own accounts now, too. Previously, the economic impact had to directly affect your own income. Although you won’t pay a penalty for your early withdrawal, you will have to pay taxes if you don’t replenish your account within three years. So if you get to the end of that three-year period and haven’t caught back up with your financial goals, you’ll be on the hook for that income tax. There’s also the lost portfolio growth. Granted, if you’re in dire straits and need cash today, you’re rightfully more worried about putting food on the table today than you are about retiring comfortably down the road. However these exceptions will end on September 22, 2020, so if this is something you need to do, make sure it is before the deadline.

SOURCE: Two Cents

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