Government to loosen rules on retirement accounts

Robert Powell Special to USA Today

The CARES Act, the legislation just signed into law by President Donald Trump, contains plenty of provisions for those saving for and living in retirement. But experts say those who can take advantage of the new law have lots to consider.

The law temporarily loosens the rules on hardship distributions from retirement accounts, giving people affected by the crisis access of up to $100,000 of their retirement savings without the usual 10% penalty.

The law also doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. IRAs don’t permit loans.

The new rules apply to a whole range of people, including those who have lost a job because of the pandemic, those suffering from COVID-19 or who have a spouse with the virus.

If your emergency savings fund is running low, it may make sense for you to use your 401(k) to ride out the COVID-19 pandemic, says Keith Whitcomb, the director of analytics at Perspective Partners.

Is the money worth the disruption?

While the new law provides more options for people who are struggling financially, think carefully before acting.

Also, disrupting the accumulation of 401(k) assets with loans and hardship withdrawals is generally discouraged. Whitcomb also notes that the COVID-19 crisis has destabilized the job market as businesses close to stop the spread of the potentially deadly virus.

Waiver of 2020 RMDs

For retirees and owners of inherited IRAs, the law suspends for 2020 the required minimum distributions (RMDs) the government requires most people to take from tax-deferred 401(k)s and individual retirement accounts (IRAs) starting at either age 70½ or age 72.