IRS permits more Americans to tap retirement accounts without penalty
WASHINGTON -- The IRS released new financial relief guidance related to the coronavirus pandemic on Friday, allowing more people to draw from their retirement accounts without penalty.
In addition to people who lost their jobs during the pandemic, the tax agency now says individuals who experienced a reduction in pay or were supposed to start a job – but experienced a delay due to the virus – can access their savings. Further, people who lost a job offer over the past three months can do so, as can people who suffer adverse financial consequences due to the impact of the virus on their spouses.
Earlier this year lawmakers approved legislation that gives individuals greater flexibility to tap retirement accounts as a means to help them weather the financial effects of the virus. People can take up to $100,000 from their 401(k) retirement stash without being subject to the 10 percent penalty – so long as the funds are used for coronavirus-related financial needs. Individuals will, however, have to pay income taxes on the money.
An individual does, however, have three years to repay a coronavirus-related distribution in order to undo the tax consequence.
Experts, however, are cautioning against using this option if possible. Jeff Schneble, CEO of Human Interest, said it could eventually compromise the ability for people to retire down the line – especially considering people would essentially be selling at a time when the market is near a low point in valuation.
But many Americans are taking advantage of the option. As previously reported by FOX Business, about 17 percent of people told TD Ameritrade they had already tapped their retirement accounts as of May, and 21 percent said they were considering doing so. Nearly 30 percent of respondents had withdrawn, or were considering withdrawing, from their 401(k) accounts, and 27 percent said the same about their IRA and Roth IRA accounts.