On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by President Trump. One of the provisions of this legislation is centered around distributions from Retirement Accounts (IRAs & Employer Sponsored Retirement Plans).

If you or your spouse have been financially impacted by COVID-19, the IRS has suspended early withdrawal penalties from these vehicles up to $100,000. The distribution is still subject to income tax, but the IRS is allowing taxpayers to spread out the taxes equally over the next three years (2020-2022). The 10% early withdrawal penalty typically applied to these withdrawals will be waived.

Many investors have the bulk of their savings in 401k or IRA vehicles so this may be a relief to know this is an option. This should be a last resort option if savings are not available and obligations need to be met.

Selling out of your investments during a temporary correction in financial markets can have significant long-term financial consequences by potentially locking in losses and impairing your portfolio’s ability to recover.  It is preferable to add to savings during sell offs.

If you are still saving for retirement, the behavioral aspect of using these funds can also be detrimental:  It is better to think of retirement accounts as “off-limits” for current spending which will lead to better long term savings outcomes.   These assets should only be tapped in the case of true emergencies.

We understand these are challenging times. It is best to speak with your financial advisor who knows your individual circumstances to weigh this important decision.