The Coronavirus pandemic has affected the rules surrounding gaining early access to 401K funds.  Dustin Stanley, Financial Planning Advisor of Strategic Wealth Designers, joined WDRB in the Morning’s Sterling Riggs to discuss the implications of tapping into 401K funds early. “First of all make sure you understand what a 401K is. It’s set up for one purpose and that’s a retirement account. So unless you are using the money for the specific things outlined by the CARES ACT you need to expect to pay some pretty heavy penalties and taxes for pulling it out early,” Stanley said

According to Stanley, removing money early from a 401K or 403B retirement plan is considered any time before the age of 59.5. The IRS will penalize a person 10% for withdrawing those investments early and taxes must be paid on the money withdrawn as well said Stanley. Stanley claimed there is an exception with some employer plans that allow a person to withdraw money as long as they pay it back. “There are employer plans that allow you to withdraw a portion of your account, usually a maximum of $50,000. And again, keep in mind that if you do this you are stifling the growth of that account. And if you leave your employer you are required to pay the full balance of what you withdrew immediately, so be careful because there are a lot of risks of taking money out of your 401K early,” Stanley said.

When it comes to being laid off, Stanley said typically a person’s 401K shouldn’t be left behind. “There’s a couple reasons why, one, your money becomes a lot more flexible in rolling it over to a 401K. And two, if you employer has laid a lot of people off, they could be going through some financial difficulty right now. And if they got into bankruptcy, assets including that 401K you have could be frozen for a while,” Stanley said.

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