Not affiliated with The United States Office of Personnel Management or any government agency

Not affiliated with The United States Office of Personnel Management or any government agency

More People With Tax-Protected Retirement Savings Are Eligible to Withdraw Without Penalty.

Congress passed Emergency COVID-19 response laws to give relief to those directly or indirectly impacted by the virus. One of the laws passed by the government includes people who have tax-protected retirement savings and allow them to withdraw their savings without paying any extra tax penalty. This includes savings like individual retirement accounts, 401(k)s, and 403(b)s, but only under certain circumstances (mentioned by the government). Now the IRS has decided to include more families under this law and make them eligible for it. 

Scott Tong of Marketplace has done some research and has found out what is going to change. Here is the transcript of his conversation with David Brancaccio, the host of the “Marketplace Morning Report.”

David Brancaccio: Who qualifies under this expansion — please elaborate?

Scott Tong: Initially, the CARES Act allowed you pull out up to $100,000 from your retirement plan without paying early withdrawal penalties if you or your spouse were diagnosed with COVID-19, or if you were laid off from your services, if the virus impacted your business and you were forced to shut it down, or if you were quarantined or for some reason couldn’t access child care. These were several categories. From Friday, more categories will be included, reflecting things happening around the workplace.

If your pay was cut, you were given a job but were furloughed, if your spouse has any of the above, you can withdraw $100,000 from your retirement account savings.

So for a family, this addition can be double the tax help. But, let’s not forget about half the population that does not have any retirement plans.

Brancaccio: If you or your spouse is eligible, what would be the tax help?

Tong: This question is fundamental. Generally, if you withdraw this money before you are 59 1/2 years old, you are forced to pay a regular tax rate plus a 10% withdrawal penalty. But now, coronavirus relief protects you from paying the penalty. You still need to pay regular taxes if you see your nest egg.

Brancaccio: So, do you think this is a dicey proposition? Is it like breaking glass in the case of an emergency? 

Tong: Several personal finance gurus have given this warning to investors. You still need to pay taxes, and you are compromising your retirement.

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