Crooks Target Early Retirement Withdrawals
If you’re struggling financially in today’s downturn, your retirement nest egg may be a tempting source of cash. Maybe you really need it. Just know that scammers have their eyes on the same money.
In normal times, workers face significant obstacles to getting hold of funds they have set aside in vehicles such as Individual Retirement Accounts and 401(k) plans. Workers younger than age 59½ typically must pay a 10 percent penalty if they take the money. Importantly, they may not put it back in their savings later, which permanently harms the nest egg. But as the economy plunged earlier this year, Congress offered a break: Lawmakers suspended the 10 percent penalty for 2020, and gave people three years to put the cash back into their accounts.
Scammers are now trying to acquire your hard-earned savings. According to the Securities and Exchange Commission, “fraudsters and other bad actors are using these CARES Act benefits, which are intended for those facing economic hardship from COVID-19, to promote high-risk, high-fee investments and other inappropriate products and strategies.”
Regulators caution consumers to guard against this fraud. They offer the following warnings to keep your money safe if you wish to tap a retirement account and reinvest the savings this year:
You may be saddled with high fees. Stiff costs, which can really add up, are a sign that the new investment may not be in your best interest—and that others may be profiting excessively from your money.
You may lose access to the cash. Watch out for high fees to withdraw or gain access to your money. Ask if there are costs to taking out your cash.
Your investment advisor may not be legitimate. If you have any reason to question their credentials, be sure to verify that an individual is licensed to give advice or sell investments. [Click here for more guidance on how to check out an advisor.]
If the investment sounds too good to be true, it’s probably a scam. High-pressure sales pitches and promises of great returns are classic red flags for investment fraud.
Early withdrawals from your nest egg can have long-term consequences on your financial well-being. Congress temporarily eased the obstacles as a special remedy for those who have suffered financially due to COVID-19—not to encourage risky speculation. You can find questions and answers on the tax issues of these retirement withdrawals by clicking here.