Let me start by saying that retirement accounts for working people should be used only as a last resort. That being said, the CARES act includes a provision allowing you to withdraw up to $100k from your IRA or work Retirement Plan penalty-free if you are affected by the virus.

I want to point out that this is a PENALTY-FREE withdrawal and not a TAX-FREE withdrawal. Remember, you generally pay a 10% early withdrawal penalty in addition to federal and state income taxes on any withdrawals taken from your IRAs or other retirement accounts before reaching the age of 59.5. This new rule waives the penalty but does not waive the income taxes that might be due on these distributions.

The good news is that the new rules do allow for you to pay the taxes due on the money withdrawn from your retirement plans over three years by making contributions to your IRA in excess of the current $6k ($7k if 50 or older) limit. Plus, you have those three years to replenish some or all of the money that you have taken. To qualify, either you or your family must have had a coronavirus diagnosis or you are experiencing other financial hardships directly related to this pandemic crisis.

Another option is to borrow against your 401k or 403b plan at work. Under the new rules you can now borrow up to $100k from your work retirement account. Previously, the limit was the lesser of 50% of the account balance or $50k.

There is a huge pitfall associated with these 401k loans. If you leave your job before paying back the amount borrowed and are not able to repay the remaining loan at that time, the outstanding balance is treated as a taxable distribution subject to federal and state income taxes plus the 10% early withdrawal penalty if you are under the age of 59.5. You are generally required to repay your 401k loan over five years.