Jay Clayton, chairman of the Securities and Quarrel Commission, warned Wednesday about the risks of tapping 401(k) retirement money and using it for riskier investments during the coronavirus pandemic.
As segment of the CARES Act, Congress approved a change to let people withdraw up to $100,000 from their 401(k) or IRA accounts this year without give birth to to pay the typical 10% penalty for people under the age of 59½. The move was designed to help people weather the economic bears of the Covid-19 crisis, an intention Clayton told CNBC he “very much” supports.
“What I don’t support is people doing something of a piece with that, not to bridge a gap or a difficulty, but to maybe change to a different investment strategy that isn’t in their long-term interests,” Clayton commanded on “Squawk on the Street.”
People who take advantage of the penalty-free withdrawal will still have to pay taxes on the money, but those tariffs can be paid over a three-year period.
“What I’m saying to the financial community is, ‘Look, people need to make those withdrawals to get onto a difficult time, we should help them with that. But we shouldn’t use that lack of a penalty to put them into investments that aren’t arrogate for them,'” Clayton added.
More from Personal Finance:
Trump administration wants to replace $600 unemployment aid
12 million people are at risk of not getting their stimulus check
The stock market can’t sit still. Why you should
Clayton’s intercession regulates securities in the U.S., seeking to maintain market functioning and protect investors, according to its website.
The coronavirus outbreak has had considerable economic consequences, putting millions of Americans out of work on top of its severe health impacts. But the pandemic also has served as an opening for new people, particularly younger people, to start investing in stocks.
Clayton said investing is a great way to build the monetary stability that is so critical during times of economic duress such as the Covid-19 crisis. But he said new retail investors should also appreciate the risks associated with equity markets.
“Our favorite kind of retail investor is your long-term retail investor who establishes their wealth over time through investing. There is risk in being a short-term, market-timing participant, and it does survive me nervous,” he said. “People are perfectly able to do it. We let them do it. But just remember, there is risk in short-term market swings.”