RICHLAND, WA - COVID-19 has caused millions of people to lose their jobs, which is affecting some Americans' ability to save for retirement.
Since March, more than 30 million Americans filed unemployment claims as the United States shed an unusual 20.5 million jobs. The unemployment rate jumped to 14.7 percent in April.
This is the highest level of unemployment America has seen since the Great Depression. If you find yourself unemployed, it's natural to think about accessing 401k funds to make ends meet.
Normally when you draw money out of a 401k or another qualified retirement account, such as an individual retirement account or IRA, Chris Porter with PorterKinney said if you are not 59 and a half years-old, you would pay a ten percent penalty of the distribution. Porter said not only do you pay taxes when you receive that money from retirement, but you also pay that 10 percent penalty.
"Well for 2020, if you have a coronavirus related distribution to pay for medical expenses or you lost your job or something related to coronavirus and you received money from retirement to pay for those expenses or help maintain your living while you are out of a job," Porter said. "Then, you can receive that payment without paying that 10 percent extra penalty,"
Porter said you also have the opportunity to spread the tax out over three years.
"Let's say you took out $50,000 out of retirement and you are age 45 and you are taking that $50,000 dollars out because you lost your job and you have a bunch of medical expenses, so it's a qualified coronavirus distribution," Porter said. "You don't have to pay the 10 percent penalty."
Porter said that saves $5,000, which is 10 percent of $50,000. Even though you would owe taxes on that $50,000, he said you could pay it over three years.
"$5,000 on your tax return you file next year, $5,000 the year after and $5,000 the third year," Porter said.
If you have still concerns about the treatment of retirement income or accrued benefits, you are encouraged to reach out to your tax professional for help.