More people are eligible to tap retirement savings without penalty
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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
Are states ready to roll out COVID-19 vaccines?
Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.
How is the service industry dealing with the return of coronavirus restrictions?
Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.
How are hospitals handling the nationwide surge in COVID-19 cases?
As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.
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