More people are eligible to tap retirement savings without penalty
Share Now on:
One of the emergency COVID-19 response laws passed by Congress lets people who have tax-protected retirement savings withdraw them without the extra tax penalty. That includes savings like individual retirement accounts, 401(k)s and 403(b)s, but it was only under certain circumstances that the government let people do this. Now the IRS is making more families eligible.
Marketplace’s Scott Tong has more on what’s changing. The following is an edited transcript of his conversation with “Marketplace Morning Report” host David Brancaccio.
David Brancaccio: Explain this expansion — who qualifies?
Scott Tong: Originally, the CARES Act let you pull out up to $100,000 from your retirement plan — and not pay a penalty — if you were diagnosed with COVID-19, or your spouse was, if you were laid off, if your business shut down due to the virus, or if you were quarantined or for some reason couldn’t get child care. That’s several categories. But, as of Friday, there are more to reflect what’s happening in the workplace.
If you had a pay cut, or a job that was offered and then taken away or, and this is the big one, if your spouse has any of the above, you can take that $100,000 from your retirement account.
So for a household, that’d be double the tax help. But, let’s point out: About half the population does not have a retirement plan through work.
Brancaccio: What’s the tax help, here, if you or your spouse qualify?
Tong: This is important. Normally if you take this money out before you’re 59-and-a-half years old, you pay your regular tax rate plus a 10% penalty. So now, this coronavirus help only excuses you from the penalty. You still owe regular taxes if you dip into your nest egg.
Brancaccio: So this is still a dicey proposition. Only break glass in the case of an emergency?
Tong: That’s the warning from several personal finance gurus. You still owe taxes. And you’re shrinking your retirement.
COVID-19 Economy FAQs
What’s the latest on the extra COVID-19 unemployment benefits?
As of now, those $600-a-week payments will stop at the end of July. For many, unemployment payments have been a lifeline, but one that is about to end, if nothing changes. The debate over whether or not to extend these benefits continues among lawmakers.
With a spike in the number of COVID-19 cases, are restaurants and bars shutting back down?
The latest jobs report shows that 4.8 million Americans went back to work in June. More than 30% of those job gains were from bars and restaurants. But those industries are in trouble again. For example, because of the steep rise in COVID-19 cases in Texas, Gov. Greg Abbott, a Republican, increased restrictions on restaurant capacities and closed bars. It’s created a logistical nightmare.
Which businesses got Paycheck Protection Program loans?
The numbers are in — well, at least in part. The federal government has released the names of companies that received loans of $150,000 or more through the Paycheck Protection Program.
Some of the companies people are surprised got loans include Kanye West’s fashion line, Yeezy, TGI Fridays and P.F. Chang’s. The companies you might not recognize, particularly some smaller businesses, were able to hire back staff or partially reopen thanks to the loans.
You can find answers to more questions on unemployment benefits and COVID-19 here.
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.