The CARES ACT, signed into law on March 27, 2020, allows people in need to withdraw from money from 401k plans with fewer penalties. This only applies if you are facing financial hardship from Covid-19 or diagnosed with Covid-19.
The new law temporarily waives the early withdrawal penalty fee of 10% from 401k plans. Previously, anyone withdrawing money from the 401k accounts prior to age 59 ½ had to pay a 10% penalty.
People can now withdraw up to $100,000 from their account but must pay it back within 3 years.You must also pay taxes on the money that you witdraw. It is counted as regular income. You do have the option to pay the income taxes over a 3 year period.
Only do this option if you have no financial resources available. Since this is a loan, it must be paid back within 3 years, you must pay income taxes on the money withdrawn, and you are losing out on ‘retirement savings and compound growth’.
The deadline to withdraw money is September 23, 2020. It is recommended that you calculate the total amount that you need and make any withdrawals at one time, instead of making multiple withdrawals.
Since this is a LOAN from your 401k account, you must also contact your retirement plan or plan manager and see if this is even an option. Some 401k plans may not allow personal loans.
Remember, this is a loan that you must pay back in 3 years.
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