While most financial advisors would strongly recommend against withdrawing from your retirement fund, if you have no other choice but to dip into it before you're retired, there are some new updates.
The CARES Act— which provides economic relief to Americans through new, temporary laws regarding unemployment benefits, retirement funds, and more — reduces the penalty and/or waives the penalty for employers withdrawing from their employer-sponsored retirement funds.
The CARES Act waives the 10% tax penalty on withdrawals up to $100,000 from a retirement plan for an individual who meets the following criteria, according to Andreski:
- Is diagnosed with COVID-19;
- Whose spouse or dependent is diagnosed with COVID-19;
- Experiences adverse financial consequences as a result of:
- Is being quarantined, furloughed, laid off, having hours reduced
- Is unable to work due to lack of childcare due to COVID-19
- Is closing or reducing hours of a business owned or operated by an individual due to COVID-19
"Additionally, individuals will have the option to pay tax on the income from the distribution over a 3-year period, or repay that amount back to the plan – tax-free – over a 3-year period. Repayments are not subject to contribution limits," she added.
Again, it's important to note that most personal finance advisors strongly recommend against withdrawing from your retirement account early unless it's absolutely necessary.