| IRS expands eligibility to take up to a $100,000 coronavirus-related withdrawal from IRA, 401(k) | | |  | WED, JUN 24, 2020 | | | | Financial advisors, overall, say borrowing from a qualified retirement account should be a last resort.
In fact, while chatting with an advisor a few years back, I asked what his feeling was about individuals borrowing from their 401(k) plan.
Without hesitation he said: "It's not a loan; it's a withdrawal, and it's a really bad idea." He said you need to exhaust every other option available before touching the money you are saving for retirement. He concluded: "If you still have a car, a television or jewelry, you haven't exhausted all your options."
That may seem extreme, and perhaps it is. Some advisors feel you can tap into that 401(k) early if you have what they deem an "immediate and heavy financial need."
Well, the pandemic has certainly created a serious financial burden on millions of Americans and their families. Over the past four months, millions of American workers have experienced sudden and unexpected losses of their primary sources of income. They need access to cash.
Tapping a 401(k) plan or individual retirement account is basically the best option for many of these people. Congress has offered some assistance by passing legislation through the CARES Act to make it easier to access money from those retirement accounts.
The new law creates a penalty-free early distribution rule, using similar "adverse financial consequences" guidelines: If you have a 401(k) or IRA and are under age 59½, you can take a penalty-free retirement account distribution of up to $100,000. But be aware, borrowing from your 401(k) is considered a loan. Under the CARES Act, you will have up to six years to pay yourself back. Of course, loans do have an associated interest rate, currently between 5.25% and 6.25%.
To be sure, it's complicated and requires some serious financial planning. That's why I suggest talking to a financial professional for advice. Reach out to a financial advisor or accountant and discuss your options and make sure this financial decision is right for you and for your family.
For more key stuff like this, please follow me on Twitter @jimpavia and check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow. | | Here's why you haven't received your tax refund | | Tax refunds can be a significant source of emergency cash, especially at a time when households' finances are pinched. A few unfortunate taxpayers have been waiting since this spring to get their money back. | | | | | | Something to hate for everyone | | "One of the interesting things about the situation we're in is that there's something to hate in here for everyone ..." | | | |
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