Should You Use Your 401(K) During COVID-19?
Published on 8/3/2020
COVID-19 has caused a lot of problems for millions of Americans. Financially, a lot of people are hurting. Due to stay-at-home orders, many hardworking individuals have been laid off. This has caused many to tap into their 401(k)s to stay afloat. Traditionally, this would have caused fines to incur for withdrawing money early. The CARES Act has altered this reality.
This doesn’t mean you can pull all of your money from your savings. There is a limit of $100,000. Assuming the max amount in your 401(k) is less than $100,000, then yes, you can withdraw the full total of your 401(k). In order to qualify, you, your spouse, or a dependent must provide evidence showing there has been a medical diagnosis or other financial impact from COVID-19.
Keep in mind these are still taxable. However, you can pay the tax over the course of three years. Once you have the money, you can do with it what you will.
If you happen to still be “working” for the company, you can ask if there are 401(k) disbursement plans for COVID-19. The alternative would be to take out a 401(k) loan. As it is with any financial deal, make sure you understand the terms and conditions. It’s possible the loan could come due should you choose to leave your current job.
Obviously, this is a decision that requires a lot of thought. Just because there aren’t penalties for dipping into your 401(k) doesn’t mean you should. Everyone’s situation is different, so, while this might not be ideal, if you need the money to keep your head above water, start to ask some questions about what a withdrawal would entail. As a final warning, you shouldn’t take any more than what you need. Remember, eventually this money needs to be paid back, so only pull out what you think you’d be able to put back in.