Clients who make withdrawals from their defined contribution plans under the CARES Act to cover coronavirus-related expenses may experience long-term financial strain.
Those who do not pay back that money back, as permitted by the act, could find a median of 20% less in their retirement accounts when they turn 65, according to research by the Employee Benefit Research Institute presented at their Virtual Policy Forum June 29.
For clients who are closer to retirement, it gets even worse, according to the research.
“That is a huge concern,” says Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce, who spoke in the presentation. “There’s already concern that people aren’t saving enough.”
Under the CARES Act, clients impacted by the coronavirus — whether by contracting COVID-19 or being laid off — can withdraw up to $100,000 from their retirement savings from their defined contribution plan or IRA without incurring the 10% penalty. They have the option to pay back the distributions for three years, thereby spreading out tax liabilities.
Clients may be eligible to take a $100,000 loan from their retirement plan and extend their repayment period an additional year.
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Anil Vazirani is president of Secured Financial Solutions, independent insurance advisor investment advisor rep with a fiduciary obligation and in the financial services industry since 1994. A+ rating with the Better Business Bureau for over a decade and a half, members in good standing with the National Association of Insurance and Financial Advisors.
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