If you’ve been staying on top of stimulus bill talk over the past 10 months or so, then maybe you’ve heard the phrase Coronavirus Related Distribution (CRD) and are aware that they are penalty free distributions from your retirement accounts. I think I’ve mentioned them a few times in past blogposts as well. If you have been considering taking advantage of a CRD due to hard times, then you should do so as soon as possible. The deadline to take a CRD is December 30, 2020, which is a little less than two weeks away at this time. Now, I am not encouraging you to take a CRD as I am against taking money out of a retirement account early unless it is the absolute last resort. However, if you find yourself in certain situations that meet CRD requirements–such as being diagnosed with Coronavirus or having lost a job because of it–then you may want to consider a CRD to tide you over for just a short time. And remember, there’s only a couple weeks to do so, so you need to make that decision soon! If you do consider taking a CRD, I encourage you to read up about them or speak with a certified financial planner or wealth manager about it to make sure it’s really the best decision for you.
Life can be unpredictable. Do you know how you will handle that unpredictability? For example, if you were faced with a sudden, substantial medical bill or your home was damaged in a storm, do you know where the money to pay for those expenses will come from? If you’re financially savvy/smart, you probably have an emergency fund set aside to help with those expenses. However, if you don’t have such money set aside or the costs are more than your emergency fund, you may need to find other financial resources to tap into. While I strongly discourage it and will only suggest it as an absolute last resort, taking an emergency withdrawal from your retirement funds is a potential option. I want to remind you, again, that taking emergency withdrawals from your retirement account is highly discouraged and should only be done under the rarest of circumstances. It’s also important that you at least understand the rules and consequences of taking a hardship withdrawal. First off, you will want to see if your retirement plan even allows hardship withdrawals. Most 401(k)s and IRAs allow for hardship withdrawals, but there may be specific guidelines you will have to follow. You will also need to ensure that the expenses you intend to use the money on qualifies as a “hardship” as defined by the plan rules or custodian. Many plans have a list of such events that automatically qualify (i.e. certain emergency medical procedures, required home improvements, etc.). Be aware that there will be tax consequences to a hardship withdrawal if coming from somewhere that isn’t a Roth IRA. You may even get hit with an early distribution penalty, depending on your age when you make the withdrawal. You will also need to make sure that the withdrawal is only for the amount of the expense and nothing more. Before you make a hardship withdrawal, you need to show that you have no other options as well, which may require opening up your financials to scrutiny. These are the main things you will need to be aware of, but there may be more depending on the retirement plan you want to take money out of and your personal situation. Taking a hardship withdrawal can be a tricky transaction that can open you up to serious penalties if not done correctly. If you are considering a hardship withdrawal, you will want to speak with a certified financial planner both to decide if the move it right for you and also to make sure that you do it correctly should you decide to do it.