Retirement accounts should ideally be preserved for retirement, but sometimes circumstances force early withdrawals. Before tapping into retirement funds, consider these alternatives:

• Pause retirement contributions temporarily
• Reduce unnecessary expenses
• Use non-retirement savings and investments
• Sell unused possessions
• Negotiate with creditors
• Seek assistance from government or charitable organizations

If accessing retirement funds becomes necessary, here are the main options:

Coronavirus Hardship Withdrawal

• Withdraw up to $100,000 from 401(k)s and IRAs
• No early withdrawal penalty
• Tax payments spread over 2020-2022
• Option to repay within 3 years for tax refund
• Available if affected by COVID-19 (diagnosis, reduced hours, layoffs, business closure)

Roth IRA Contributions

• Withdraw contributions tax- and penalty-free
• Only earnings face taxes and penalties
• Converted funds may face penalties if under 5 years

Short-term IRA Loan

• Withdraw and repay within 60 days
• No taxes or penalties if properly repaid
• Limited to once per 12 months

401(k) Loan

• Borrow up to 100% of vested balance (max $100,000)
• Five-year repayment term
• 2020 payments can be delayed one year
• Unpaid loans trigger taxes and penalties

Traditional IRA Withdrawal

• Generally taxable
• 10% penalty if under 59½
• No repayment option

Regular Hardship Withdrawal

• Available for immediate financial needs
• Examples: medical expenses, tuition, home purchase
• 20% tax withholding
• Usually subject to 10% penalty

Important: Consult with a bankruptcy attorney before using retirement funds to pay debts that could be discharged in bankruptcy, as retirement accounts are typically protected from creditors.

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