Americans will soon be able to take penalty-free withdrawals from their 401(k)s, but experts say think twice about using retirement savings

401(K) Plans

Americans will soon be able to take penalty-free withdrawals from their 401(k)s, but experts say think twice about using retirement savings. (via @CNBCMakeIt)

401(K) Plans

3/27/2020

Americans will soon be able to take penalty-free withdrawals from their 401(k)s, but experts say think twice about using retirement savings. (via CNBCMakeIt)

Congress' $2 trillion coronavirus stimulus plan will allow Americans to tap into their retirement savings to cover bills, loan payments and everyday expenses. But experts say that while it's tempting to cash in, Americans should exhaust every other option first.

at the University of Pennsylvania. And many have far less than $100,000 saved. A recent report found pre-retirees, Americans 56 to 61, had a median balance of $21,000 in their 401(k) accounts in 2016, which is the most up-to-date data on file. That total reflects almost 30 years of savings. Younger generations do not fare much better. Older millennials (32 to 37) have about $1,000 saved in their 401(k)s. Not only that, but employees with retirement accounts tend to be the higher paid, better educated and longer-term workers. "Therefore allowing people to tap into their retirement accounts won't help the millions who have no accounts," Mitchell says. "Those with no accounts are also likely to be the people that will be needing the most help." Additionally, Mitchell predicts that the U.S. will see an increase in applications for early Social Security benefits, particularly if the recession is long and hard. "People taking early benefits will end up with a lifetime of lower payouts, and if they already ate into their 401(k)s, they'll be more likely to face shortfalls in their later years," she says. Consider the costs of taking retirement money Giving Americans the ability to take $100,000 in penalty-free withdrawals is probably rooted in the right place, says Timothy Ellis Jr., a certified financial planner with Memphis-based Waddell & Associates . But those withdrawals could have a long-term negative impact on retirement plans and needs moving forward, Ellis says. Especially because the worst time to withdraw investment assets is in the middle of a dramatic market downturn. Because the investments are worth less, consumers may have to withdraw a larger percentage of the account, Ellis says. Then there's the opportunity cost to raiding your retirement savings early. "Accessing retirement plan accounts, especially for younger workers, can put a permanent dent in plan balances," Ellis says. In fact, for an investor who makes steady retirement contributions over their career, the amounts saved during the first 10 years may end up accounting for half of their retirement account balance at age 65. That's because compounding is one of the most powerful tools to boost retirement savings, and making a withdrawal, especially during the early stages of investing, reduces that ability, Ellis adds. Even a smaller withdrawal adds up in the long run. A $5,000 balance today could be worth $57,900 in 35 years , assuming a 7% annual rate of return. You also can't forget about taxes: While the new rule allows for penalty-free withdrawals, the money isn't totally free. "There will still be ordinary income taxes owed on withdrawals from traditional 401(k) deferral, employer matching and profit sharing balances," Ellis says. Under the new stimulus package, however, consumers would be allowed to spread out the income taxes over a three-year period, so consumers wouldn't take such a massive hit on next year's taxes. The Senate's CARES Act is expected to pass the House of Representatives on Friday, but there are still steps retirement plan providers will need to take to make this new benefit available to consumers. It's also worth noting that under the recently passed SECURE Act, Read more: CNBC

MakeIt but experts no need any money MakeIt Very simple-- DON'T DO IT! Instead, take this time to add funds to your retirement account. Everything is on sale right now. MakeIt . No need to take money out of your 401K. Soon you will receive money. NancyPelosiThanksForMyStimulus 🥳 GOP FoxNews MAGA WhiteHouse RepublicansAreKillingUs FBR

MakeIt Listen to me! If you need money and you can’t borrow, then yes please take money out of your falling 401k immediately. All 401ks have fees and all very limited investment capabilities. MakeIt I was saying this all along! No penalty At any age,m! MakeIt Beg borrow or steal first. MakeIt Unfortunately, it will be the young couple/family that has managed to acquire a small nest egg, but their job loss will require their 401k to be their lifeline. Sad, but true. Those gov’t check(s)/Unemployment only go so far 😕

MakeIt If this virus explodes, I would recommend it to pay off all bills and maintain a safety net. Get monthly expenses to as little as possible. MakeIt DON’T DO IT UNLESS LIFE DEPENDS ON IT. MakeIt Of course, don't withdrawal and crash the market on the rich. You retirement funds will absolutely be there in how ever many years when you need it. Trust them.

MakeIt Terrible idea! This is their way to let the middle class bailout themselves by tapping their retirement accounts. Notice they alway say a “family of four is getting 3k” but never say if you make 150k you get nothing? .SpeakerPelosi

You need to have a plan for your 401(k): Bone Fide Wealth presidentDouglas Boneparth, Bone Fide Wealth president and CNBC Financial Advisor Council member, joins 'Power Lunch' to discuss how to examine your 401(k) during the market volatility.

MakeIt Uh this is a fire sale. Everything must go. Sell sell sell. MakeIt Get your money out of wAll street ASAP!

What 401(k) investors can learn from Tuesday’s massive market bounce1. You really can’t time the market and shouldn’t try. Those who panicked and cashed out just missed a massive, 10% single day jump. And this happens in...

Here's why Suze Orman says it's better to invest your retirement savings in a Roth 401K if you canFinancial expert Suze Orman says when it comes to investing for your retirement, there's a better solution than a traditional 401(k). MakeIt true. MakeIt Only contribute what gets your full company match in a traditional 401k and then max out a personal Roth IRA. After that, invest in/with fundrise. And after that, make a budget for a little bit of fun alternative investing/individual stocks. (5%) MakeIt Save for years, wipe off 35% in a month

A better way to disinfect your houseMany common household cleaning products can kill the coronavirus if you use them properly - NBCNewsBETTER BETTER Make sure to be specific that no one should eat or drink any of them.. Apparently people ARE that stupid. BETTER But don’t drink it! BETTER Best don't clean there is this ongoing war between bacteria and in that war the virus gets killed. Bacteria never miss a spot unless you kill them.

Retirees Get Relief in Senate Coronavirus Stimulus PackageThe Senate's stimulus bill included breaks for retirees. Here's what to know about 401(k) loans, required minimum distributions and “hardship withdrawals.” make sure you don't mention the $35 Million pork barrel spending that the dems included for the 'Kennedy center'

'The Bachelor' Star Colton Underwood Questioned If He Was Gay Because He Was Bullied For Not Having Sex As A Teen'I thought, maybe I am gay.' Riveting content, guys Seems like he might be within striking distance of 90 IQ points.



China lied about coronavirus, putting world in jeopardy, US intelligence agents say

Adam Schlesinger, Fountains of Wayne singer, dead at 52 from Covid-19

Grand Canyon National Park closes after employee tested positive for coronavirus

'Stacy's Mom' Singer Adam Schlesinger Dead at 52 from Coronavirus

US freezes shipments of protective gear overseas

Watch Healthcare Workers Applaud Cleaning Staff for Their Hard Work

First U.S. ER physician dies from COVID-19

Write Comment

Thank you for your comment.
Please try again later.

Latest News

News

26 March 2020, Thursday News

Previous news

Suze Orman: 'There couldn't be a better time' to start investing than right now

Next news

Seeing 'until tomorrow' all over Instagram? Here's what it means
US coronavirus death toll crosses 5,000 Chris Cuomo says his coronavirus fever was so bad, he hallucinated seeing his father Live coronavirus updates: U.S. death toll nears 5,000 An ER doctor dies in his husband's arms a week after first coronavirus symptoms Social Security recipients won't need tax return to receive stimulus payment Chinese smartphone health code rules post-virus life Opinion | How South Korea Solved Its Face Mask Shortage Art and carnage in the Italian Renaissance 'Tiger King' Star Doc Antle Says Joe Exotic Got Screwed, Others Got Away Want a Florida beachfront hotel? Get coronavirus. How Brands Can Successfully Engage With Consumers Quarantined Due To COVID-19 'I will bury you': Philippine's Duterte warns that anyone breaking coronavirus lockdown can be shot dead
China lied about coronavirus, putting world in jeopardy, US intelligence agents say Adam Schlesinger, Fountains of Wayne singer, dead at 52 from Covid-19 Grand Canyon National Park closes after employee tested positive for coronavirus 'Stacy's Mom' Singer Adam Schlesinger Dead at 52 from Coronavirus US freezes shipments of protective gear overseas Watch Healthcare Workers Applaud Cleaning Staff for Their Hard Work First U.S. ER physician dies from COVID-19 U.S. Census Announces Those People Will Be Majority By 2043 Coronavirus live updates: More than 200,000 cases in US; Grand Canyon closes Coronavirus first responders desperately need more safety equipment, 9/11 firefighter says Troye Sivan's 'Take Yourself Home' Is a Gloom-Pop Bop Trump administration announces crackdown on international drug trade amid pandemic