Americans Warned Against Accessing $1,000 Under New Law: 'It's a Bad Idea'

An elderly man wearing a facemask walks in the garden of John Knox Village, a retirement community in Pompano Beach some 40 miles north of Miami, Florida on August 7, 2020. New SECURE 2.0 rules mean you can make an emergency withdrawal of $1,000 or less from your 401(k) without incurring a penalty.

Under the new SECURE 2.0 rules, Americans can withdraw up to $1,000 from their 401ks without any penalties.

Americans routinely use 401ks to save for retirement, but taking money out of your account could result in severe 10 percent or more penalties on your money saved.

However, after the new SECURE 2.0 was passed, you can bypass those penalties if you withdraw $1,000 or under and claim financial hardship, the new guidelines say.

What is SECURE 2.0?

SECURE 2.0 was designed after the SECURE ACT as a way to incentivize small businesses to help Americans save for retirement and increase the amount of money people tend to put away for retirement despite it potentially being decades away.

The new legislation offered a new business tax credit for companies with 50 employees or less. Employers were also able to add emergency savings accounts in their employees’ retirement plans, with up to $2,500 available to deposit into these accounts.

Companies also gained the option to match retirement plan contributions every time employees made student loan payments.

SECURE 2.0 also ruled that in 2025, employers would automatically enroll employees in new 401(k) or 403(b) plans.

Amid its most controversial changes was the update that now employees could make a single emergency withdrawal per year of up to $1,000 with no penalties. Before SECURE 2.0 went into place, that would incur a 10 percent penalty.

SECURE 2.0 Pushback

Despite the fact that this money could make or break families living paycheck to paycheck, not all financial advisors are in support of the new policy shift.

“This rule was made with the best of intentions, but I still think for most Americans, it’s a bad idea,” Alex Beene, a financial literacy instructor for the state of Tennessee, told Newsweek. “You won’t have to pay the early withdrawal penalty, but you will still have taxes on the money you withdraw.”

Using retirement funds to bail out your existing financial woes almost always ends up being a bad idea, Beene said.

“I would exhaust every other budget option with money I currently have than tapping into retirement savings, regardless of how dire the financial hardship situation is,” Beene said.

Already, Americans have been struggling to save for retirement due to how inflation, which remains at 3.1 percent, has impacted consumer spending. But now Americans might feel a new temptation to get cash while they can and abandon their retirement savings priorities.

“The rule is that some advisors feel that for every $1,000 you want to spend monthly in retirement, you need about $240,000 saved up,” Nadia Vanderhall, a financial planner at The Brands and Bands Strategy Group, told Newsweek.

She added that many anticipate retirees’ withdrawal rates at around 5 percent of their savings each year.

“Yet, under SECURE 2.0 which is in process, you’ll be able to withdraw up to $1,000 without penalty as an emergency distribution,” Vanderhall said.

“I worry that many people need more money to not only build up to saving more within their retirement but also understand how pockets of investing can yield to be separate income streams down the line,” she added.

Vanderhall said employees should generally contribute what they can but also understand what they’re investing in.

“The ‘set-it-and-forget-it’ is fine, but you have to look under the hood at what funds are available and what the rate of contribution will be.”

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