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
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
Give me a snapshot of the labor market in the U.S.
U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.
What do I need to know about tax season this year?
Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.
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