Why Taking from Your IRA or 401k is Not the Best Decision
I cringed when I read that the Cares Act designed to help Americans adversely affected by the pandemic would allow people to withdraw up to $100,000 from their retirement accounts without penalty. Having worked with participants of retirement plans for nearly 30 years, I knew this would possibly open up another excuse to steal from their future.
Yes, there are many people who have contracted the virus, cared for someone who contracted the virus or lost their job and have suffered financially. Many others have not. Yet many of those not affected have inquired or actually taken funds from their retirement accounts. According to early information, funds will have to be paid back within 3 years or taxed, but tax may have to be paid each year and then refunded at the end of the three years.
Unfortunately, money withdrawn from accounts when the values have dropped will likely lead to selling a near lows and when paid back three years later, buying back in at higher prices. This will negate any positive benefits of using the funds for the three-year period. I more likely event is that the funds will not be paid back and lost forever.
Bottom Line: Retirement accounts are for retirement. Even if you think you won’t live long enough to see retirement, your doctor will probably disagree with you. Before taking any retirement funds, speak to your tax preparer, investment advisor or future self.