We’re always trying to find ways to help people feel more secure in their retirement. We continue to learn more and more about the new rules in the $2.2 Trillion Stimulus package (the CARES Act) signed into law by President Trump on March 27, 2020. One change that might help people out is the CARES Act and your 401k retirement account.
There are several changes happening from the CARES Act and your 401k. Let’s start with retirees. Normally when you reach 70 ½ years old, you have to start taking money out of your 401k. It’s called the Required Minimum Distribution, or RMD. When you take the money out, you have to pay taxes on it. If you don’t take the money out, the IRS will penalize you with heavy taxes up to 50% of the money you should have taken. YUCK!
The new change is that you don’t have to take any money out this year. That also means you won’t have to pay taxes on the money. If you can live without the money, it’s probably a good thing to leave it alone. They calculate the amount you have to withdraw based on the value on December 31, 2019 (the previous year).
The stock market was riding high at that time.
Now the market not doing so well.
Rules in the CARES Act and Your 401K
If you lost a lot of money in the stock market, you would have had to withdraw a larger percentage of your 401k to avoid the penalties. The Stimulus Bill save you from that.
The Bill also allows people of any age to withdraw up to $100,000 from the account. If you can pay it back in 3 years, you don’t have to pay any taxes on it. Think of it as an interest-free loan. If you can’t pay it back in three years, you have three more years to pay taxes on it.
The big stipulation on the withdrawal is that it has to be “Coronavirus-related”. However, the rules are pretty loose on this. Here are the requirements. You just need to meet one. The people who hold your 401k are told to just take your word for it:
- You have the Coronavirus
- You are experiencing “adverse financial consequences” which can include not being able to find work or child care
The third benefit of the CARES Act and your 401K is that you can borrow up to $100,000 against your 401k. The pre-virus limit was $50,000. If you have a loan due in 2020, it will be extended for another year.
Tempting as these loans and withdrawals may be, remember this is your retirement money. If you don’t really need the money, it might make sense to leave it where it is. But if you REALLY need it, it’s nice to know you can pull on it without penalty. And that the interest goes back to you!
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