FACT CHECK: Did COVID relief actually cost you $46,000 in your retirement account?

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As part of the CARES Act Congress passed in March, Americans were provided financial breaks and lifelines as a way to mitigate the negative economic effects of the COVID-19 pandemic.

One of them was a loosening of restrictions on withdrawals to 401(k) retirement accounts, Fox Business Network reported.

In particular, the program allowed account holders who were in financial binds to quickly access their 401(k) savings so they could pay bills. But months later, it appears as though the virus-related withdrawals turned out to be a lot more expensive than anyone thought.

After the stock market tanked in March following mass mandatory business closures and lockdowns, which cost tens of millions of Americans their jobs, share prices have grown dramatically. For instance, the S&P 500 spiked 46 percent between April 1 and Nov. 30.

And while that is exceptional news for savers who didn’t have to access any of their 401(k) funds, it’s not very good news for those who did.

“Depending on how your retirement funds were invested, your balance may or may not have been growing in lockstep with the market,” Fox Business Network reported.

“But if you were seeing market-level growth in your retirement account and you’d taken the maximum $100,000 distribution in early April, that withdrawal may have cost you as much as $46,000 in lost earnings,” the outlet added.

And while that is a lot of money to most Americans, there is a way to replace those losses in three steps and “minimize the damage” while getting “your retirement plan back on course,” notes Fox Business.

Repay it: Under normal circumstances, early withdrawal from 401(k) plans will incur both penalties and income taxes. The CARES Act waived the penalties as long as the money was being used to alleviate financial difficulties related to the pandemic; it also extended the amount of time account holders have to pay those income taxes.

The tax liability does not have to be paid in full by Tax Day 2021; rather, it can be spread out over a period of three years. So that means declaring one-third of the total amount withdrawn from a retirement account as income for the next three tax returns.

“But here’s the kicker. If you repay the withdrawal in full before the end of 2022, you get credited back all of the federal taxes you’ve paid on that distribution,” Fox Business reported, which could save between $15,000-$20,000 on a $100,000 withdrawal. It’ll just take filing amended returns for 2020 and 2021 to get the credit.

Boost contributions. While saving money to repay the distribution, it would also be a good idea to bolster regular retirement contributions because “saving more is the only way to make up for” lost gains, Fox Business reported.

And while that will likely involve revamping monthly budgets to compensate for the extra expense, it will be worth it in the long run “because what you invest today has longer to grow than funds invested next month or next year.”

Build an emergency fund. An emergency cash fund can be used “instead of your retirement account” for the next time, should the pandemic — or some other event — cause a loss of income for an extended period of time.

“Advisors generally recommend you target an emergency fund balance that covers three to six months of your living expenses,” Fox Business noted. “If that amount seems unachievable, shoot for enough to pay your highest insurance deductible and one month of your rent or mortgage payment.”


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Jon Dougherty


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