Why raiding your 401(k) during COVID-19 should be an 'absolute last resort'
With unemployment levels at a record high and millions of people across America feeling the financial burden of the coronavirus pandemic, it may be tempting to dip into your 401(k) account for immediate help.
Not so fast, experts warn.
"These are excruciatingly difficult decisions to be made but dipping into your 401(k) early is your absolute last resort," ABC News chief business, technology and economic correspondent Rebecca Jarvis explained Thursday on "Good Morning America."
Jarvis shared three reasons why taking money out of your 401(k) is not the best financial option for most people at this time.
1. You will owe money on what you take out. "The CARES Act now allows people to withdraw money from their 401(k) before they are [60 years old] without paying the 10% penalty, but you still have to pay taxes on whatever you withdraw. You’re still going to owe money on what you take out."
2. You will be selling on the lows. "In addition to that, because the market has sold off, you would be selling on the lows. You’re not going to make any kind of upside as a result of withdrawing that money."
3. You're stealing from your future. "The most important key here is that you’re stealing from your future. If you take $10,000 out of your 401(k) today, you are taking out what could become about $60,000 if you let it ride out this storm and let it go for the course of 30 years."
Other ways to get financial help
If you are struggling right now, there are other options available to help your financial situation, according to Jarvis.
In addition to tips like negotiating with your landlord, calling your credit card company and finding ways to save money, Jarvis suggested these two tips.
1. Negotiate bills with banks. "A number of them are willing to do forbearance at this time."
2. Use any emergency savings. "This is an emergency. If you have emergency savings, now is the time to think about tapping into that."
