Retirement | November 20, 2020

Should You Take a Coronavirus-Related Distribution from Your 401(k)?

For millions of Americans struggling financially in the wake of COVID-19, legislation that allows early, penalty-free withdrawals from certain retirement accounts in 2020 may feel like a lifeline. However, those eligible for a coronavirus-related distribution should approach the decision with caution.

“The new rules are well intentioned,” says Rob Williams, vice president of financial planning at the Schwab Center for Financial Research, “but early withdrawal penalties were put in place to help preserve your savings for their true purpose: funding retirement. Tapping the money early may help in the short term but could have the opposite effect in the long term.”

Of course, there may be times when withdrawing retirement funds early is the right—and possibly only—course of action. Even so, here are three tips to consider as you weigh your options:

  1. Exhaust the alternatives: Your retirement savings may be a tempting target, but other options might make more sense in the long run. For example, borrowing against the equity in your home or your brokerage assets could provide the short-term cash flow you need without undermining your long-term goals.

  2. Keep your withdrawal to a minimum: The legislation allows you to withdraw up to $100,000 across eligible accounts—but just because you can withdraw that amount doesn’t mean you should. After all, every dollar you withdraw now is a dollar you’re taking from your future self (not to mention any gains it might produce if you were to leave it invested).
  3. Pay it back ASAP: If you do decide to take a withdrawal, make a plan for getting your retirement savings back on track as quickly as possible, particularly since you won’t owe taxes on those funds if you pay them back within three years.


If you’re thinking of taking a coronavirus-related distribution, be aware that the provision is set to expire at the end of 2020, unless Congress votes to extend it. Also be sure to check with your employer’s plan administrator before taking a withdrawal, as employers are not required to amend their plans to provide for such distributions and/or loans. And finally: “Speaking with a financial advisor before taking action is always a good idea,” Rob says.

What You Can Do Next

  • Get help thinking through your options from a Certified Financial Planner™ professional when you enroll in Schwab Intelligent Portfolios Premium™. Learn more today.