NOTE TO EDITORS: This is the final release of “Life and Money.” If you have any questions, please contact email@example.com. Thank you for supporting this feature.
Hi, Helaine: We don’t know what to do. I lost my job last week (COVID-19 layoff). At the same time, my husband’s salary has been reduced by 10% through next year, for the same reason. I’m applying for unemployment, but when the $600 federal boost to it goes away this summer, I’ll receive only a few hundred dollars a week. We’re not going to be able to get by without severe damage to our finances. We need to pay our mortgage, real estate taxes, utilities, car payments, grocery bills and other recurring expenses. We don’t want to turn to credit cards to get by. Should we take money from our retirement accounts instead? -- Out of Good Options
Dear Out of Good Options: I’m really sorry about all this. It’s a hard time for everyone, but knowing that probably doesn’t offer much in the way of comfort -- or actionable advice. But, then again, one of the lies of personal finance is that there is always a good answer to a problem. This is untrue. Many decisions -- like the one you are facing -- leave you deciding between a handful of bad alternatives, and doing it, moreover, with no knowledge of what the future will bring. Your husband could be back at work within a month. Or your family could be looking at years of financial struggle. I can’t answer that question. No one who is honest can.
So here are a few facts to help you with your decision: Thanks to legislation Congress passed, you can take up to $100,000 from your Individual Retirement Account or 401(k) if you can prove a coronavirus-related loss. At the same time, you can pay the taxes you owe on the early distribution over a three-year period. If you replace the money, you can receive a credit for the taxes paid.
Should you take out the money? Well, no, not if you have other good options. You are, after all, losing valuable savings, possibly permanently. But then again, payday loans and credit card debt are not a good option. And you wrote me. I’m guessing you don’t think you have other good options, and you might well be right. So a few questions to consider: First, make sure you are withdrawing it to pay for expenses you have no other way of paying. Second, prioritize putting the money back if you can, over things like home renovations or considering it found “fun” money, if your financial situation improves -- which hopefully it will. Conversely, if you have any reason to believe you are a candidate for bankruptcy, don’t touch it -- retirement funds are mostly shielded from creditors if you file for relief.
A final note: This my final Life and Money With Helaine column. I want to say thank you to all my readers and people who wrote seeking advice. I will miss you.
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(EDITORS: For editorial questions, please contact Sue Roush at email@example.com)