Is it a good idea to take advantage of a COVID 100K withdrawal?

[Mary Jay]

Hey guys,

So my 401K company says that due to corona virus I can take 100K withdrawal from my 401K and pay it off in 3 years. (If I dont pay it back then I will be taxed on it so its better to pay it back).

1) Is that a good idea to take the money out now and buy for cash a house or two (two houses if I add some money to it, obviously) ?

2) What if inflation happens? I guess even if inflation happens, if I take 100K then I will be returning 100K as well...

3) What to keep the money in? I cant keep it under my mattress...I dont really want to put it in CDs or stocks...Bank account? Never had more than 30K in my bank account...Makes me kind of nervous...

[George Blower]

@Mary Jay

What you are referring to was authorized under the CARES Act which is one of the recently enacted stimulus bills in response to the COVID-19/Coronavirus Crisis.

While it's true that your employer has to agree to allow their employee participants to be able to take the type of distribution that you describe, please note the following details:


Assuming that you have been impacted by the virus in one of the enumerated ways and therefore qualify, you can take a penalty-free distribution (as well as waive the 20% withholding requirement) from your 401k (assuming that the employer allows it) anytime between 1/1/2020 and 12/31/2020. 

You may avoid the taxes if you deposit the funds in an eligible retirement plan (which includes an IRA) within "3 years and a day" of the date of the COVID-19 distribution (note: compare to a 60-day rollover). 

Please note that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").