Skip to main content

401(k) Withdrawal Penalties Suspended Again

In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed people affected by the coronavirus to withdraw or borrow up to $100,000 from their 401(k), Individual Retirement Arrangement (IRA) or similar account without a 10 percent penalty until the end of 2020. The exception was only for those who were diagnosed with COVID-19, had a spouse diagnosed with COVID-19 or had adverse financial consequences due to the disease.

In December 2020, Congress passed the Consolidated Appropriations Act of 2021. As part of the overall appropriations bill, lawmakers approved the COVID-Related Tax Relief Act of 2020. Part of that bill was the Coronavirus Related Distribution (CRD) Exception. The CRD gives employees and individuals the ability to withdraw or take a loan from their retirement accounts up to $100,000. However, to qualify they must show they live in an area where a major disaster was declared. Areas that only have been affected by the COVID-19 pandemic are not included.

The CARES Act exception was popular. According to a national poll conducted by Kiplinger’s Personal Finance and digital wealth management company Personal Capital, nearly 60 percent of Americans withdrew or borrowed money from an IRA or 401(k) during the pandemic, and nearly two-thirds used those retirement funds for basic living expenses