HARLINGEN, Texas – Many are now turning to their retirement plans as the COVID-19 pandemic leaves millions in an economic limbo.
Under the stimulus bill, savers can remove up to $100,000 from 401K plans without the typical 10 percent early withdrawal penalty.
There are other options and turning to your retirement funds shouldn’t be one said Bobby Farris, Wealth Management Group Chairman at Texas Regional Bank.
“First option is, under the CARES ACT, if you’re a sole proprietor or you’re an independent contractor you can apply for PPP and I would recommend you do that right through your bank. Most banks you can do it online. If you’re not then call your employer, most likely your employer already applied for this relief and 75 percent of the money that they get, has to be spent on salary. So they’ll be hiring people back very very soon.”
Although taking money from your retirement is penalty-free, it isn’t consequence free, said Farris.
“There are tax consequences. You still have to pay taxes on the money that you take out. There’s a high probability that you won’t pay that money back and you will need that at retirement.”
Those who decide to remove funds will have a three year period to pay taxes and the amount removed from retirement plans.