Withdrawing from 401k plans during the pandemic

Posted at 5:43 PM, May 21, 2020

TUCSON, Ariz. — The CARES Act was signed into law to provide economic relief for individuals and businesses. Within, it also explains provisions for retirement plans.

The act expanded the amount one can withdraw out of their 401k, if you are younger than 59 and a half.

"Let's say you're struggling with a large credit card debt, for instance, you're barely making the payments on the minimum. It might be a good idea to look at taking some money, a withdrawal or a loan, from your 401k at this time,” said Tiana Ronstadt, a financial advisor with Power Women Investing.

That replaces bad debt with an asset.

Under the CARES Act, withdrawals no longer have the 10-percent penalty; and you can take up to three years to pay it back.

"If this year's going to be a big tax year for you, maybe you defer the whole thing for three years. Maybe you do a third, a third, a third. Maybe you do 50/50. It doesn’t matter. And same with payback, you could put some back now, some back later,” said Ronstadt.

The act states these provisions are in effect until the end of the year, December 31st, 2020.

You must prove you were affected physically or financially by the COVID-19 pandemic to withdraw from your plan.

"So I would just say keep good records of kind of what's happened in your life and what the need is. I think everyone is going to be able to say they were somewhat affected,” said Ronstadt.

Ronstadt also stressed, the 401k plan does have to have had the language that withdrawals were allowed, before January 1, 2020, to make use of this. If you can't withdraw from a 401k, you may be able to take advantage of this with your IRA or other retirement assets.