The Times Herald (Norristown, PA)
Color of Money
Just under 1% of 401(k) investors stopped their retirement contributions, and 9% increased their contribution rate.
If you can afford it, consider increasing your own contributions if your employer has suspended its match.
In a related issue about retirement plans, a reader wanted to know about making a withdrawal under the Coronavirus Aid, Relief, and Economic Security (Cares) Act.
Q: Under the Cares Act, can we take a withdrawal from my husband’s 401(a) without being penalized? I’m not sure my company is going to allow a hardship withdrawal.
A: A 401(a) is similar to the more familiar 401(k) plan. But this workplace retirement plan is generally for people working for a nonprofit organization, educational institution or government agency.
The Cares Act, which passed in late March, includes several provisions that cover retirement accounts. The act temporarily increases how much you can borrow from your retirement and waives the penalty for an early withdrawal.
If you’re younger than 59½, you’re ordinarily subject to a 10% early withdrawal penalty, in addition to income tax owed, if you remove money from an IRA, 401(a) or similar retirement account. However, under the Cares Act, if you have experienced financial hardship related to the pandemic, the 10% penalty is waived for distributions up to $100,000.
Here are other situations covered under the Cares Act:
• You’re unable to work for lack of child care.
• You’ve had to close or reduce the hours of a business.
• Your self-employment income has been reduced.
• You have a member of your household who has lost a job or income or had an employment offer rescinded, or even experienced a delay in the start date for a job. This might include a spouse, live-in partner or an adult child who has moved back home. For purposes of applying these expanded rules, a member of the individual’s household is someone who shares the individual’s principal residence.
The coronavirus-related relief does not require employers to change the provisions of their retirement plans to allow for the benefits provided by the Cares Act. The IRS also clarified that administrators of retirement plans can establish procedures to identify which withdrawals are considered coronavirus-related.
Even if an employer plan doesn’t consider a distribution to be pandemic-related, individuals can “self-certify” on their federal tax returns that a distribution was qualified, the IRS said.
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