How the CARES Act affects your retirement savings
CLEVELAND, Ohio (WOIO) - Millions of Americans are worried about their retirement savings now that we are in a recession.
We talked to a financial coach to find out how the CARES Act affects what you can do with your retirement savings.
Bryan Bibbo is a financial coach with JL Smith Group in Avon.
He said if you're younger, don't worry about your retirement savings, this will pass.
And if you have 10 years or less until retirement, you still shouldn’t make any major moves.
“Last thing you want to do right now is pull your funds out of the market while we have such volatility. You're never going to be able to time this perfectly,” Bibbo said.
Here's what the CARES Act allows you to do with your retirement savings if you really need help right now, like you just lost your job due to the pandemic.
“So typically and individual over 59 ½ would have a 105 penalty on their account for premature withdrawals. Now we run into situations where you can pull up to $100,000 out of that account and not pay that 10% penalty. But watch out, because it is still subject to tax, especially if you're using pretax dollars,” Bibbo said.
If you're directly affected by the coronavirus pandemic, you can take a hardship withdrawal from your retirement account. For example, Bibbo said:
“I lost my job temporarily, or I took a 50% decrease in my salary because of the coronavirus. So that would be considered a hardship, something that puts you in a rock and hard place as I like to describe it.”
You can also take out a loan with a one year delay on paying those loans back between March and the end of the year.
“Actually I tell people if you can go the route of the loan it's probably better, because when you're paying that interest rate back, you're actually paying it back into your 401k,” Bibbo said.
Here's what Bibbo said you need to think about if you're choosing between a hardship withdrawal and a loan.
“But the key, key thing here is you have to pay it back, with a hardship you don't have to pay it back but be weary, think about the end in mind. Please think about the end in mind. And here's why. If you take that X amount of dollars out of the 401k and you use it and don't repay it back like the loan value, well guess what, you may very well hurt yourself in the long term. Think about if you even took a $20-50,000 loan, what's that going to be worth 5, 10, 20 years from now?” he said.
And remember, it's a last resort to withdraw money from your retirement savings.
“You’re just mortgaging out your future for some kick the can time down the line when you’re going to need this money for retirement,” Bibbo said.
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