In late March, the CARES Act was signed into law, and it included one key provision that, when exercised, could really bail Americans out of their financial jam: the option to take penalty-free withdrawals from a retirement savings plan, The Motley Fool Reported. Normally, IRA and 401(k) withdrawals taken before age 59 1/2 are subject to a 10% early withdrawal penalty. Savers get a tax break on their contributions and investment gains, so in return, they're asked to leave their money alone until retirement. Those who don't abide by that rule get penalized. Under the CARES Act, savers can take a withdrawal of up to $100,000 if they've been affected negatively by the COVID-19 outbreak, and that withdrawal won't be subject to penalties at all. But interestingly enough, most people have not exercised the option to remove $100,000 from retirement savings. In fact, the majority of savers didn't take a coronavirus-related distribution at all. Although the option to remove funds from an IRA or 401(k) without penalty is a good one to have in theory, the fear is that many workers will deplete their retirement savings prematurely, then wind up with inadequate funds later on. But so far, coronavirus-related withdrawals have been minimal. Vanguard reports that only 1.9% of savers took a retirement plan withdrawal through the CARES Act through May 31. Of those, the median distribution amount was $10,413. Furthermore, nearly 30% of distributions taken because of coronavirus were under $5,000, and only 4% took the maximum $100,000 withdrawal. All of this is very good news. The less money workers remove from their savings today, the more they stand to retire with. And also, lower withdrawals equate to less missed investment growth.
