Cashing out a 401(k) due to coronavirus? Consider these things first

Retirees are advised to tap into their Roth accounts last to minimize hefty tax bills associated with 401(k) distributions.
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Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about

Cashing out a 401(k) due to COVID-19? Consider these things first
Clients planning for retirement need to make a few considerations before taking 401(k) distributions to cope with the economic impact caused by the coronavirus pandemic, according to this article in NerdWallet. For example, cashing out 401(k) assets during a market downturn could hurt their retirement prospects and lock in enormous investment losses. They will also owe taxes on the distributions, unless they recontribute the money into the account within three years. Clients will be better off tapping their Roth accounts, as they won't owe income taxes and penalty on the withdrawals, the article says.

Here’s exactly what clients need to do if they lose their job
Clients who have lost their jobs should first ask their former employer about how they can repay their outstanding 401(k) loan, as the remaining debt will be treated as a taxable distribution if they fail to reach an agreement, according to this article in CNBC. They are advised to also consider moving their 401(k) assets into an IRA, pay attention to costs and ensure that they will have a variety of investment options, according to the article. They should avoid an actual distribution, as they will owe penalty, face a potential tax liability and miss out on future investment growth, the article suggests.

Don’t let your clients leave benefits behind
Working clients are advised to take measures to avoid a gap in their health coverage and have a plan on what to do with their 401(k)s when they change jobs, writes Kiplinger's Kaitlin Pitsker. For starters, they may opt to leave their old 401(k) assets with their former employer, but rolling over these assets into their new plan will allow them to better manage their investments, she writes. A direct rollover is also recommended to avoid the risk of paying income taxes and a hefty penalty.

401(k) investors may be tougher than you think
Market volatility is the time for 401(k) participants who are close to retirement to preserve their assets and for younger participants to remain calm and stay the course, according to this article in MarketWatch. They need to have a proper perspective to ride out this market correction. “This time around, it’s more difficult because we are out of control for so many other things in our daily lives,” an expert says. “Focus instead on what you can control. How you save versus spend."

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April 7

The Social Security age gamble for clients: Claim now or wait?
Clients need to make a number of considerations before deciding at what age they are advised to start collecting Social Security retirement benefits, writes a financial adviser in TheStreet. For example, it will be wise for them to file early if they are suffering from chronic conditions, he writes. Clients also have to account for other factors, including their biological age, gender, income and discount rate.

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Coronavirus Markets and indexes Tax planning Retirement benefits 401(k) Social Security Roth IRAs Retirement planning Portfolio management Retirement income