For many of us, 2020 was a year to forget. On top of a tragic human toll, the pandemic that will last well into 2021 cost millions of people their jobs.
If you lose your job, you have to look for other resources to pay your living expenses. An unlikely source could be retirement savings. Let’s look at how you might consider taking money from an ERISA-qualified plan like a 401(k) or a 403(b).
Taking money out of a retirement account before your golden years has adverse consequences. The Department of Labor and IRS say you should consider putting away 10% to 12% of your income between the ages of 25 and 65 for retirement.
It’s important that people who’ve reached the age of 59½ know that the penalties for taking money early from a retirement plan are waived. Regular income taxes still apply, but not distribution penalties.
As for younger people, some plans allow for hardship distributions under certain conditions, such as avoiding eviction from your home. But hardship distributions assume you’re still employed.
If you’ve lost your job, money you take from your plan may be subject to taxes and penalties.
Taking any money from a retirement plan may affect your standard of living in future years, but everyone understands life has challenges.
If you’re considering taking a distribution from a qualified retirement plan, it might be wise to talk to a financial professional. They can help with all sorts of financial issues, see the bigger picture and maybe help plan a future course.