Many Americans are struggling financially due to the coronavirus. A recent federal relief package makes it easier for people financially harmed by the coronavirus outbreak to tap into their retirement savings for cash by loosening rules for withdrawals and loans.
But should they use them?
Experts say it's an option of last resort and should be done with great caution. A few things to consider first:
The CARES Act allows people affected financially by the coronavirus to withdraw up to $100,000 penalty free from eligible retirement accounts during 2020. Previously, any withdrawal before age 59 ½ faced a 10% penalty.
The new withdrawal rules apply to most retirement accounts, such as 401(k) accounts, 403(b) accounts and IRAs. The rules are fairly broad in terms of who qualifies: anyone who has been diagnosed with the virus or has otherwise experienced related adverse financial consequences.
People won’t face a penalty, but they will still have to pay taxes on the withdrawals. However, those tax payments can now be stretched over three years.