Should workers affected by coronavirus be able to withdraw from their 401(k)?

With the coronavirus crisis already causing thousands of job losses, the Wall Street Journal editorial board called on Congress recently to allow Americans to take money out of their 401(k) penalty free.

The opinion piece argues people should be able to take a certain sum — such as $10,000 — for a provision called "in case of global coronavirus pandemic." Typically, pulling money out of a 401(k) early comes with a 10 percent penalty and you must pay tax on the distribution.

Note: This question was asked last week before Congress had drawn up a stimulus plan that allows Americans to take up to $100,000 out of their 401(k) without penalty.

Q: To fight the economic fallout of the coronavirus pandemic, should Americans be able to withdraw from their 401(k) penalty-free?

Norm Miller, University of San Diego

YES: Americans should be able to take what is left of their 401(k) without any limitation on the amount and without any penalties. Right now, cash is king, and liquidity is essential for all businesses and all those laid off, or soon to be laid off. Any limits on withdrawals are inappropriate as many businesses will be using such funds to help employees or the community in general. Tapping 401(k)s and delaying or reducing taxes owed are great ideas.

James Hamilton, UC San Diego

Not participating this week.

David Ely, San Diego State University

YES: The pandemic will lead to job losses and hardship. Given the economic damage caused by the severity and suddenness of the pandemic, affected individuals should have multiple options from which to choose to cope with the financial disruptions to their lives. Removing the penalty would make withdrawals from a 401(k) more feasible. However, a withdrawal would reduce retirement savings and possibly create a tax obligation, so this option has some negative consequences.

Ray Major, SANDAG

YES: Unprecedented times call for unprecedented measures. There are already hardship withdrawal provisions in place to help with economic hardship, paying college tuition, or funding a down payment for a first home. Hundreds of millions of Americans will be adversely affected by this pandemic. Allowing them to withdraw their own money from a retirement account is not only a good idea, but the humane thing for the federal government to do.

Reginald Jones, Jacobs Center for Neighborhood Innovation

YES: The coronavirus is a huge threat to family economic conditions. Congress should waive the early withdrawal penalties and related taxes for 401(k) plans. The provision should require proof of hardship. While noting the potential of people cashing out during a low market — and jeopardizing future retirement, unobstructed access to any savings for food security, housing and key necessities to keep afloat is essential.

Chris Van Gorder, Scripps Health

YES: A 401(k) and other defined-contribution plans were established to allow Americans to save for retirement on a tax-deferred basis. To discourage withdrawals for other purposes, taxes and a 10 percent penalty is assessed on early withdrawals. Under ordinary circumstances, these disincentives are prudent. However, in extraordinary times, such as the current COVID-19 pandemic, Americans should be permitted to access their savings without penalty, particularly if they need the funds to offset lost earnings due to furloughs or illness.

Jamie Moraga, IntelliSolutions

YES: But there should be a reasonable limit on what could be withdrawn without penalty or tax implications. The coronavirus pandemic will eventually abate, and Americans will still need retirement savings. If they withdraw too much in fear-based decision making, then they won't be ready for retirement in the future. Other considerations: raise the 401(k) and IRA maximum for a period of time so Americans can take advantage of replenishing their accounts when markets return to normal, give retirees a tax "holiday" for required minimum distributions (RMDs), and briefly suspend the RMD so older Americans are not mandated to withdrawal funds starting at age 72.

Lynn Reaser, Point Loma Nazarene University

YES: With job losses climbing into the millions, many Americans desperately need a backstop. Waiving penalties would help those seeking any possible resources.This should be one of the last options people choose since they will suffer the stock market's precipitous decline and will later need those retirement savings. Waiving penalties will not help the half of workers who have no such plans. Cash payments and more unemployment benefits would be more helpful to them.

Phil Blair, Manpower

YES: Every option needs to be on the table. But the resulting taxes will need to be paid, just like the program was designed. The $2 trillion dollar aid package just approved should assuage a lot of concerns and support those in dire need. Hopefully letting them avoid raiding their savings program. But if needed this is why we do have saving programs like 401(k).

Alan Gin, University of San Diego

YES: With the economy in extreme distress and many people losing their jobs, people need as much financial flexibility as possible. Allowing people to withdraw from their 401(k) funds would give them access to money that could be used to make mortgage or rent payments, deal with medical emergencies, and handle other expenditures that might be necessary. If it can be avoided, it should not be done as it would negatively affect people's retirement. But it may be necessary in a desperate situation.

Kelly Cunningham, San Diego Institute for Economic Research

YES: Penalty-free hardship withdrawals are already available from 401(k) plans under certain conditions. Shuttering world-wide economic activity due to the pandemic should certainly be considered such an emergency. There may be problems extending access to long-term funds intended for retirement, but this is much better than repeated helicopter droppings of fabricated money from the Treasury. Liquidating investments with losses at more than 20 percent should not have an IRS penalty added on top of it.

Gary London, London Moeder Advisors

YES: While it is not normally prudent to draw from a retirement account to pay for current expenses, given the severity of the crisis, it is reasonable for Congress to vacate penalties for withdrawals. I would propose a phased withdrawal schedule with time and amount limitations on each withdrawal. I would also include an incentive to replenish, such as eliminating the income tax on future retirement-related withdrawals of the same amount of the replenishment.

Austin Neudecker, Weave Growth

YES: The ability to withdraw a designated amount ($5,000 to $20,000) from 401(k) accounts could help some middle-class families through the current crisis (pay bills, rent/mortgages, afford essentials). Long term, our compatriots are ill-prepared for retirement, so we should encourage the money to return to savings, but that is a problem to solve post-crisis. Bigger picture, we should remember that the most impacted don't have 401(k)s, and think of ways to alleviate the impact on our most vulnerable.

Bob Rauch, R.A. Rauch & Associates

YES: Americans should be able to withdraw from their 401(k) penalty-free. It is their money and these are difficult times. I see no reason we cannot come up with a list of specific steps that Americans can take to reduce hardship during the next several months. The economic fallout is severe and we must be here for each other. Drop the penalty and help those who are going through financial tough times.

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