Exactly what the CARES Act Says About 401(k)
- Due to the coronavirus, you can withdraw up to $100,000 from your 401(k) with no penalty.
- You may also borrow as much as $100,000 and pay yourself back with interest.
- Withdrawing or borrowing out of your 401(k) should still be a final resort.
You likely have heard many times, “do not touch your 401(k).” While it may seem enticing sometimes to withdraw or borrow some of your retirement funds, you can be hit having a 10% penalty. But the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act is now allowing you to either withdraw or borrow from your 401(k) without penalty from understanding the economic impact of COVID-19.
According to the Act, you can now withdraw up to $100,000, or up to 100% of the vested balance, whichever is less, without facing a 10% penalty. Prior to the CARES Act, the total amount was as much as $50,000 and as much as 50% of the vested balance, whichever was less.
Another option is to “borrow” your retirement funds instead of “withdraw” them. Should you borrow the cash, you will pay yourself back with interest. However, should you default about this loan, even though you are paying yourself back, you will have to pay a problem.
While you simply wish to touch your retirement funds like a last resort, understanding that the CARES Act makes these changes can provide some respite.
For specific investment recommendations, we advise speaking with your financial advisor. Meanwhile, Credit Sesame is a free valuable resource to help you monitor your credit and explore other credit options over these uncertain times.
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