Advising coronavirus-strapped clients who need cash now

June 8, 2020

By Ed Slott, Financial Planning

With shuttered businesses, soaring unemployment and careening markets, this year has not been conducive to long-term retirement saving mindset. And what’s the natural go-to for clients when times get precarious or downright desperate? Cash, which can be counted on to pay the mortgage and put food on the table. It can take precedence over saving for a retirement that is — or can seem — decades away.

This is exactly the kind of dilemma where financial advisors can prove their worth to clients, helping them avoid costly mistakes and possibly even reaping benefits when they prematurely tap into their retirement funds.

First, however, some tough talk is called for. Clients need to know that, however necessary, early withdrawals can be an expensive proposition. Such funds are generally taxable and may also be subject to a 10% early distribution penalty if no exceptions apply. Such funds may also take years to replace.

Also let them know that some retirement accounts can provide significant hedges against tough times. If a client is in debt or facing bankruptcy, for example, 401(k)s and IRAs are generally protected in bankruptcy under federal law but anything withdrawn becomes immediately exposed. They lose that protective shield and are exposed to creditors.

Continue reading

View all News