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Covid-19 hardship withdrawal
American Middle Class

Time to Start Paying Back the Covid-19 Hardship Withdrawal

Covid-19 hardship withdrawal was made possible by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.   If you were one of many American workers who took a coronavirus-related hardship withdrawal from your 401 (k) or other tax-advantaged retirement plans, it’s time to start paying the money.

The U.S. economic outlook is bright.  The unemployment rate is not at 6% compared to 14.7% a little over a year ago.   Jobless rates were down in 20 states, and payroll jobs were up in 29 states in March. 

Borrowers who were furloughed or never lost their job need to start paying back the funds even though The CARES Act gives them 2 years to do so.

Many borrowers withdrew the funds to build up emergency funds since no one knew how the pandemic would play out. Savers are not getting any interest income from their savings. 

The average interest rate for savings and money market accounts is between 4 and 60 basis points, respectively.  Ally Bank’s money market accounts pay about 0.60% annual percentage yield or APY.   

The Stock Market

Savings and money market accounts and other fixed-income assets offer anemic APY, but the stock market keeps hitting new highs.  The longer that your funds stay out of the market, the more opportunities that you miss. 

The S&P and the Dow Industrial Average yielded 16.3 and 7.3% gain for 2020.  The S&P is up 12% so far this year, including dividend return. Put your money back to work as soon as possible. 

Once you paid off your Covid-19 hardship withdrawal amount, you can make an additional $6,500 if you are 50 years old and older.  The catch-up contributions let you put more money to work for you faster.

If you are also eligible to open a Roth IRA if your modified adjusted gross income (MAGI) is $140,000 and 208,000 for single and joint filers, respectively.

Conclusion 

The US economy is growing, so you have to start paying back the covid-19 hardship withdrawal.  

The annual percentage yield that you are getting on your emergency fund is too low.  You have to put your money to work for you now since the stock market keeps reaching new highs.

If you want to make up for a lost time, you can either catch contributions or open a Roth IRA if you are eligible.   

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