The COVID-19 pandemic has had a devastating financial impact on thousands of Americans across the country. During the second quarter of 2020, the economy contracted by 32%, resulting in millions of taxpayers have filed for unemployment for the first time, but even those monies have not been sufficient to cover living expenses for many. In July, the additional $600 unemployment benefit included in the Coronavirus Aid, Relief and Economic Security Act (CARES Act) came to an end.
Americans have started tapping into their retirement funds to help cover the financial gap.
More Americans Using Retirement Funds
It is estimated that 14% of Americans have already tapped into their retirement savings to help pay for necessary expenses, with an additional 13% planning to do so in the near future. For those nearing retirement, that could cause a delay in their retirement date.
The CARES Act provides some relief for those who find it necessary to take a distribution from their retirement accounts during these turbulent times. Here’s what you need to know.
Ordinarily, distributions from 401(k)s, 403(b)s, traditional IRAs and other qualified retirement plans may usually not be taken prior to age 59 ½ without being subject to penalties. Taxpayers younger than 59 ½ are typically assessed a 10% withdrawal penalty in addition to the income taxes that must be paid on the withdrawn funds.
The CARES Act however, provides a provision that allows certain retirement savers to withdraw the funds from their retirement accounts without penalty.
According to the CARES Act, taxpayers who are impacted by the coronavirus pandemic may waive the 10% penalty for retirement distributions if they meet some of the following criteria:
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