Read this before you raid your 401(k) during coronavirus crisis

[SheltieLover]

[link:https://www.localmemphis.com/mobile/article/news/health/coronavirus/read-this-before-you-raid-your-401k-during-coronavirus-crisis/522-a21a0fc1-2236-434c-ae26-a26f6083de8a|

Many Americans are struggling financially due to the coronavirus. A recent federal relief package makes it easier for people financially harmed by the coronavirus outbreak to tap into their retirement savings for cash by loosening rules for withdrawals and loans.

Experts say it's an option of last resort and should be done with great caution. A few things to consider first:

The new withdrawal rules apply to most retirement accounts, such as 401(k) accounts, 403(b) accounts and IRAs. The rules are fairly broad in terms of who qualifies: anyone who has been diagnosed with the virus or has otherwise experienced related adverse financial consequences.

Much more at link.

[DFW]

1. They should really emphasize that "last resort" aspect

I have relatives who are in financial difficulty, but are approaching retirement age, and if they get there with nothing left as a financial cushion, they will be in basically without a cent to their names before they hit 70. They had sporadic jobs their whole professional lives, and won't have much in the way of Social Security to look forward to.

[SheltieLover]

2. Sorry to hear

but likely pretty common these days with most professionals being forced into "independent contractor" gigs, rather than jobs with benefits.

Given the current circumstances, I think people should not have to pay taxes on withdrawals, but that is not how it works.

I hope your relatives are able to make it so they don't have to touch their retirement account.

There is another plan being proposed by Dems for $2k universal income/ month during this crisis, but you know Rs will never allow that, since their intention is to starve people out.

What a mess, hu? 😏

[DFW]

3. One of them inherited some money close to 20 years ago.

I knew that if left alone, they'd spend it on something stupid like a new car or some unnecessary adornment for their small house. Instead, I got them to put it with a preferred interest-bearing account set up well over 20 years ago that was only available to me and relatives, and never touch it. It now brings them $14,000 a year, as the rate was fixed so long ago. They know full well that if they were to take it out, the interest they would get today would be about $16.95, so they haven't touched it--yet. Even they know that they'll blow through it if they take it out. I hope they are sensible and live frugally as long as they can. If they come to me for help, I'll do what I can, of course, but neither of us wants that kind of financial or emotional dependence.

[Buckeyeblue]

5. It's an intriguing option to pay off debt

New standard deduction tax rules make it impossible for most people to deduct mortgage tax. So why not just pay off the house and free up the amount of the monthly house payment?

I wouldn't pay off other debt because you can walk away from most other debt. But paying off the house seems like a good idea.