The newly enacted economic stimulus package allows those negatively affected by COVID-19 to borrow up to $100,000 from their 401(k) and IRAs without penalty. It also allows the borrower to pay the taxes on that withdrawal over three years rather than all at once.
- If you, your spouse or a dependent has been diagnosed with COVID-19, this "free pass" and "tax extension" applies to you.
- It can also apply to those who are facing financial hardship due to the pandemic. If you're in this group and need to make the withdrawal, then you should definitely consider this to be an option.
However, if you don't fall into the aforementioned group and are under the age of 59.5, withdrawing money from your IRA or 401(k) will likely cost you a 10% penalty. On top of that penalty, you have to pay taxes on all the contributions and gains that you withdraw.