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  • Irene Evans

What you need to know about taking an early IRA or 401(k) distribution due to Covid-19

As the economic disruption due to Covid-19 continues, some people are needing to withdraw from their retirement plans to make ends meet. If you're under 59 1/2, you can avoid the 10% penalty (but you still have to pay income taxes on the withdrawal) if you meet one of the following criteria:

  • You tested positive and been diagnosed with COVID-19

  • You have a dependent or spouse who has tested positive and been diagnosed with COVID-19

  • You are experiencing financial hardship due to you, you spouse or a member of you household:

  • Being quarantined, furloughed or laid off or having reduced work hours

  • Being unable to work due to lack of childcare

  • Closing or reducing hours of a business that you own or operate

  • Having pay or self-employment income reduced

  • Having a job offer rescinded or start date for a job delayed


Let your employer or IRA trustee know you are taking the money out due to Covid-19. You might want to check with your financial advisor or broker first, because taking money out now means you will be giving up future earnings and affecting the amount of money you have when you retire. Your financial advisor or broker can help you decide if there is a better alternative, such as a 401(k) plan loan or other short-term measures such as a home equity line of credit. But if you decide to take the retirement plan distribution, the 10% penalty forgiveness expires December 31, 2020, so you'll want to complete the paperwork before then.

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