Think Twice Before Cashing Out Retirement Assets for Child Care
February 03, 2020
The SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) brought several changes to the retirement landscape, like eliminating the age limit that prevented people from contributing to a traditional IRA after they turn 70½. But it’s younger taxpayers, specifically new parents, who may be affected by another revision to the rules.
New parents will be able to withdraw up to $5,000 or $10,000 between the two of them for child care costs in the first year after the birth or adoption of a child without the typical 10% penalty they would normally pay for an early withdrawal (before age 59 ½) from a 401(k) or IRA.
Raiding your retirement fund should not be done lightly. Eric Kramer, partner in the Trusts and Estates practice at Farrell Fritz in Uniondale says, “This should only be done if it’s absolutely necessary, a last resort if there is no other source of funds. You don’t want to take out retirement plan money that would otherwise grow tax-free.”
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