Early Retirement Withdrawal Restrictions Lifted In Light Of COVID-19

April 1, 2020 • By Jack Dooley

On March 27, 2020, the coronavirus relief package was signed into law.  Amongst the various stimulus incentives articulated in the package, the law removes restrictions that typically discourage US workers from accessing money in their retirement accounts prior to retirement age.

In typical circumstances, retirement accounts are assets through which we save money during our working years to be accessed during our retirement years.  In order to prevent workers from depleting these funds prior to retirement, retirement accounts such as 401(k)s, 401(b)s, and IRAs, among others, impose a penalty for the withdrawal of funds prior to age 59½.  In addition, under normal circumstances, there are limits to the amount of funds that can be loaned from these retirement accounts prior to age 59½

The newly-signed coronavirus relief package lifts the 10% penalties for early retirement withdrawals and allows for more generous loans from these types of retirement assets, as has been done in times of previous economic crises.  As pertains to retirement assets, the new law provides:

1.     The early withdrawal from retirement accounts without workers having to pay the typical 10%; 

2.     Workers are able to take loans from accounts up to $100,000;

3.     On top of what a particular plan may offer, the new law provides an additional year to repay any loans that may be taken during this period from retirement accounts; and

4.     As pertains to IRAs, individuals over the age of 72½ may keep more funds in their accounts without being required to take the standard mandatory distributions this year.

As many parts of our national, state, and local economies have come to a screeching halt as part of efforts to stop the spread of COVID-19, these measures are aimed to give workers access to money they may desperately need to get through this tough time.  Still, individuals should consider speaking with their financial professionals before tapping their retirement accounts during these uncertain times.  In addition, litigants in family law matters should speak with their attorneys regarding the implications of withdrawing retirement funds in the midst of their litigation.