With the spread of the coronavirus (COVID-19) and its financial impact of businesses, including the layoffs, furloughs, and cutbacks for employees, plan sponsors may need to preserve cash flow by reducing their 401(k) contributions, and employees may need money from their 401(k) accounts for the necessities of life.
This article discusses some of the available options—both under pre-existing (or “regular”) rules and the special rules in the new CARES Act and IRS guidance for the coronavirus impact. The article focuses on the options available for employers to help employees whose hours and compensation have been cut back or who have been furloughed. Employees who have been laid off or terminated can receive distributions from their plan accounts, although those distributions will be taxable and, if an employee is under age 59½, the distribution will be subject to an additional 10% penalty.
The views expressed here are those of Fred Reish. They should not be construed as investment advice or as the views of Hartford Funds or the employees of Hartford Funds. They are based on available information and are subject to change without notice. The information above is intended as general information and is not intended to provide, nor may it be construed as providing, tax, accounting or legal advice. As with all matters of a tax or legal nature, please consult with your tax or legal counsel for advice. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Fred Reish.