The temptation is there. Like 30 million other Americans, you are out of work as economic hard times have struck thanks to the COVID-19 crisis. Many of us are up in arms about our current and future states of finances. But what is that temptation? It is dipping into your retirement accounts as a short-term remedy for much needed cash.
But remain cautious and warned. Tapping into your retirement accounts can prove detrimental and to be a serious mistake. Tread lightly on such an action that some would consider “robbing” from the older version of yourself.
Temptation from the CARES Act
Tapping into your 401(k) was made easier through the CARES Act, which the federal government passed in March as part of the COVID-19 economic relief plan. A provision temporarily relaxes strict rules about withdrawing money from retirement accounts. As a result, people can withdraw up to $100,000 from their 401(k) and IRA accounts without the affixed 10% penalty and also defer federal income taxes.
However, participants must be directly affected by the current health crisis in ways that may include contracting the virus, job loss, inability to work due to child care matters as well as facing financial dire straits.
Choosing to jeopardize your financial future by dipping into your retirement accounts is not a move one should normally take. Many financial experts agree that such a move should be a last resort. In addition, some financial advisers say that tapping into retirement accounts should only be an option if you face a home foreclosure or bankruptcy.