November 19, 2020 – By John F. Wasik
It’s been a brutal year with more than 180,000 Americans lost to COVID. For those who were economically impacted, there’s been some relief, but it’s been short lived.
Under the CARES Act, certain rules were changed so that you could dip into your retirement savings to cover living expenses. For many, this was a lifeline.
To date, nearly one quarter of American workers have borrowed from their retirement plans, according to American Consumer Credit Counseling.
“Those who take a coronavirus-related distribution (CRD), which can be up to $100,000,” according to ACCC, “are not subject to the 10% excise tax that otherwise applies to distributions made before an individual reaches 59.5, and can pay back the loan within three years. The option proved to be a useful solution among some workers, and in June, the IRS expanded the categories of individuals eligible to borrow.”
While the extra money may have helped to pay some bills, any borrowed money needs to be paid back within a certain time, or you will have to pay taxes on the withdrawals.
And you also need to keep in mind that replacing the money is essential to maintain a robust retirement savings plan. You’ll need to get back on track — if you can.
If you’re in recovery mode, that is, working and saving again, then it’s time to refocus on your retirement goals. The need for planning has never been more important.
“Most [retirement] plan participants still have the benefits of time and continuous paychecks—both of which disappear in retirement,” writes Neal Ringquist of the Retirement Clearinghouse.
“That’s why retirement savings should be used as a last resort for meeting emergency expenses after all other alternatives, such as government assistance and borrowing, have been exhausted.”