401k CARES Act Withdrawal vs. Normal 401k Withdrawal | Should You Take A 401k Withdrawal?

401k CARES Act withdrawal limits have been updated in response to the CARES Act recently signed into law updating 401k withdrawal limits.

CARES Act 2020 401k Withdrawal Updates - Effective March 27, 2020, you can take a 401k CARES Act withdrawal of up to the lesser of $100,000 or 100% of your vested 401(k) Plan account balance. You also have the ability to take a hardship withdrawal from the 401(k) plan that is exempt from the normal 10% early withdrawal penalty and repayable within three years.

Some of the Pros of taking 401k loans and hardship withdrawals include:

Instant capital can be received from your 401k retirement account with very minimal effort. Most 401k plans offer online 401k hardship withdrawals that can get you money within a matter of a few days with no credit checks, impacts to your credit, or a lengthy application process.

Another benefit of the 401k CARES Act withdrawal is the fact that the money can be used for anything, although it is highly suggested that you create a plan for how to use a 401k withdrawal properly to get the most bang for your buck. Eliminating high-interest debt, especially high-interest credit card debt is one of the best uses for 401k hardship distributions.

Some of the Cons of taking 401k withdrawal Include:

Borrowing money from your 401k is also taking money away from your future to pay off past debts or to support your current lifestyle. Taking a look at your entire financial picture, including your spending habits will help you determine if a 401k withdrawal is right for you.

Lastly, the money that you take from your 401k will not be able to benefit from capital appreciation or dividends. This potential loss in investment gains could be devastating in the long run, so you should make sure that all of these factors are discussed when determining is a 401k CARES Act withdrawal right for me?

In summary, if your planning on using a 401k CARES Act withdrawal to consolidate debt or pay off high-interest debt then 401k withdrawals can be a great alternative to traditional financing. Just make sure you read your 401k plan documents thoroughly and have a plan for exactly what you're going to do with your 401k withdrawal proceeds.

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