Financial Coaching Blog,  Investing In Retirement

CARES Act and Early Distributions From Your Retirement

How many people have borrowed from their retirements due to COVID related circumstances & the CARES Act?

According to CNBC: (

> 17% of distributions taken between 4/6 & 6/26 were “COVID related”.

> Fidelity reported 711,000 (3%) took distributions during the same dates and…

> Vanguard reported that 2% took distributions through 5/31.

These distributions averaged $4800, but the MOST ALARMING?

> 18,600 people with Fidelity TOOK THE FULL $100,000 Max distribution!! 😳.  Equally…

> 4% from Vanguard did THE SAME! 😳.

Ok here’s the thing…borrowing from retirement isn’t all bad, but I will stress taking $100k is a TERRIBLE idea.  Do you know how long it takes to save that?!?  True Story…I borrowed from my retirement savings to make the difference with money we had saved for our real estate investments after researching the ROI, but admittedly though, I regret this decision.  Even though it’s a loan “from my future self”, We should have just opened a brokerage account with growth funds to build the down payments needed, or you know…cash, but lesson learned that I’m passing on to others.

Here’s what others don’t realize with taking the distributions:

> You avoid the 10% additional tax for under age 591/2 withdrawals, but it’s STILL TAXABLE INCOME!

> The distributions can be spread out over 3 years worth of tax returns.

> They must be repaid WITHIN 3 YEARS however!

> If paid back within 3 years, you can file an amended return on your taxes.

Paying back $4800 should be possible, BUT $100k?!?  The ONLY time you should borrow from your retirement is if you are facing bankruptcy.  Just don’t do it if at all possible.  COVID has created numerous hardships these days.  Finances probably being a big one for MANY people.  Something we stress regularly is the necessity for having an emergency fund up to 6 months.  This liquid cash should be calculated to cover your expenses for up to 6 months should something happen to your income.  By establishing a fully funded emergency fund, this should prevent any need from borrowing from your retirement.

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