SAVANNAH, Ga. (WSAV) – COVID 19 has not only hit many in terms of illness, it has hit millions in the pocketbook. Thousands of people in Georgia and South Carolina are still unemployed or if they’ve been called back to work, a lot are working fewer hours. Then there are the owners of many small businesses who may not be getting a salary at all right now. Everyone has bills to pay, including that all important rent or mortgage payment.
Many with retirement savings may be thinking of dipping into that fund right now. As a matter of fact, members of Congress anticipated some people may want to do just that and in the CARES Act, offered some remedies to make it easier to do that. For one thing, the law gets rid of the 10% penalty for early withdrawals. For anyone who does take out money from a 401-K or IRA, that is considered income so you have to pay taxes on it. However, the CARES Act allows someone to spread those payments out over three years. The new law also says if you repay what you withdrew (within 3 years) you can likely get the tax money back by filing an amended return.
It all sounds good in terms of being able to get money quickly and now without a penalty and with some help in paying the overall taxes. Still, many financial advisers get nervous when you talk about using your retirement savings now.
“Do anything you can to avoid having to touch those retirement savings,” says Michael Dayoub, a financial planner in Savannah who owns Alpha Financial Management. “But if you do have to touch your retirement, take as little as possible.”
Dayoub says if you own a home and have equity, refinancing might be a wiser choice than using your retirement. “Interest rates are incredibly low right now,” he told me. “Your home equity is a good source of emergency funds in a lot of situations.”
Dayoub says refinancing can make sense but be certain you have the equity you need and that you will be in your home long enough for it to make sense that you pay the refinancing fee.
If you have to use retirement savings he says the 3 year rule to pay the taxes is positive. “If you’re out of work this year, then your income tax rate is lower than it usually is so that is the silver lining here in a dark cloud of touching your retirement savings,” he said.
Dayoub says the pandemic has not slowed time and despite the turmoil everyone is facing now, retirement age will still come whether or not you are totally prepared. He cautions that if you make the decision to withdraw some money that you also make a plan on how you will repay it to your 401-K or your IRA.
“Just expect to pay yourself back,” he said. “Don’t give up on your retirement, people can make it back and just try to make it back as soon as you can.”