The coronavirus likely has you concerned about your finances. This might especially be true if you’re nearing retirement and struggling to pay bills. The law regarding taking early withdrawals has changed, so you might be considering tapping into your retirement funds. Here are some questions to ask yourself before you do.
Do you know the rules?
As Marketwatch reports, the new rules remove the 10 percent early withdrawal fee on 401(k) distributions up to $100,000. You’re then allowed three years to pay the taxes or even avoid the taxes by fully restoring the amount you withdrew. However, keep in mind, you must first qualify under the CARES Act for this to happen.
Have you considered the long-term impact?
If you’re not nearing retirement, the longer you leave your money in those accounts, the better. Think of the long game — and we mean long — before you make a withdrawal. Let’s say you decide to withdraw $5,000 now. Assuming a 6 percent compound annual return, in 15 years, that money would have grown to $12,272. That’s a big chunk of change to miss out on.
Is this an emergency?
Your retirement fund has been built to make your post-work life enjoyable. Don’t take an early withdrawal simply because the rules have changed. If you have enough money to pay your mortgage, bills and essential living expenses, it’s not a good idea to tap into your retirement fund.