Think twice before withdrawing money from your 401k by Chantay Moore
The Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) has created some new options for getting access to your 401k funds due to experiencing a financial hardship related to COVID-19. However, before you make this huge financial decision, let’s look into the implications of taking money out of your 401k prematurely.
First of all, there’s a difference between withdrawing money from your 401k versus taking a loan from your 401k.
A withdrawal from your 401k is money you take out that you do not have to put back into it. The CARES Act, is now allowing investors to withdraw up to $100,000 without the normal 10% penalty if you’re not yet age 59 ½. But do keep in mind, you still have to pay ordinary income taxes on those monies, but can now spread that tax burden over a three year time-frame.
On the other hand, when you take a loan from your 401k, understand you are borrowing from YOURSELF, not your employer. And then you have to repay yourself (your loan) plus interest and with your after-tax dollars. The CARES Act now allows you to take a loan of up to $100,000 or 100% of your vested 401k balance.
Whether withdrawing money or taking a loan from your 401k, you are still taking money away from your retirement. Then, if these funds are not returned or re-invested elsewhere, you could potentially significantly impact your ability to have enough money saved to retire later. If you’d like help understanding how your 401k works or receiving guidance on what your options are, schedule a complimentary phone call to speak with one of our licensed financial professionals who can help: https://www.nafls.com/financial-advising-services/
Want to see if this strategy makes sense for you, talk to one of our licensed financial professionals: https://www.nafls.com/financial-advising-services/
Please feel free to reach out to Chantay Moore directly at: Facebook.com/nativeafls