An expert weighs in on whether you should tap into your retirement plan if you've been affected by Hurricane Sandy. NY1's Shazia Khan filed the following report.
From food to shelter, many affected by Hurricane Sandy are struggling with short-term needs, and this unforeseen disaster may have them looking at their retirement plans for some relief.
"There is a lot of pain and suffering out there, and if this is the only available source of funds and you've exhausted all of the means, go ahead and take the money," said Doug Zarookian, a branch manager at Charles Schwab.
But financial experts caution to do so with your eyes open, especially with the IRS now streamlining the process for Sandy victims who decide to take a loan or hardship withdrawal from their employee-sponsored retirement plans.
The IRS is also allowing the employer to amend retirement plans to allow for a loan and hardship withdrawal if the plan doesn't already offer them. If you choose to take a hardship withdrawal, you're still subject to an early withdrawal penalty tax and income taxes.
"If you take a $50,000 withdrawal, then it is likely you will have to pay $20,000 in taxes, and that withdrawal in January 1 will have a tax due in April of 2014," says Erika Safran, the founder of Safran Wealth Advisors.
The IRS usually bans employees from making contributions for six months to their 401k and 403b plans if they take a hardship withdrawal, but this will not apply to Sandy victims. Still, experts say taking a loan against your plan instead of a withdrawal may be a better option.
"You have the opportunity to withdraw up to $50,000 or 50 percent of your retirement plan, whichever is less, and pay back within 5 years, no taxes, no penalty," Safran says.
"You don't have to qualify, as you would for another type of loan," says "The interest rate, if you take a loan, you pay it back under is a very reasonable rate."
For deadlines and details, speak with your benefits plan provider .