The article from USA TODAY discusses the new rules that allow individuals to make emergency withdrawals from their 401(k) accounts. Traditionally, accessing funds from a 401(k) before retirement age can result in penalties and taxes, but the new rules provide more flexibility for those who need to tap into their retirement savings in times of need.
The article explains that the new rules were put in place in response to the financial hardships caused by the COVID-19 pandemic. Under the CARES Act, individuals affected by the pandemic can take a penalty-free withdrawal of up to $100,000 from their 401(k) accounts. While the withdrawal is still subject to income tax, the article notes that the taxes can be spread out over three years to lessen the financial impact.
Additionally, the article highlights that the new rules also allow individuals to take out a loan from their 401(k) for up to $100,000 or 100% of their balance, whichever is less. This loan must be repaid within five years, but the article points out that the repayment timeline has been extended for individuals affected by the pandemic.
It is important for individuals to weigh the pros and cons of tapping into their 401(k) for emergency funds. While the new rules provide more flexibility, taking money out of a retirement account can impact future savings and long-term financial security. The article suggests that individuals should explore other options, such as emergency savings or seeking financial assistance, before resorting to tapping into their 401(k) as an ATM.
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