Withdrawal from 401k?

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@eva morelKeep in mind that in order to take a distribution or loan under the CARES Act you must have been impacted by the virus in one of the enumerated ways & your current account provider must allow you to take a CARES Act distribution or loan. The IRS recently provided guidance regarding eligibility under the CARES Act and specified that a qualified individual includes an individual who has a reduction in pay (or self-employment income) due to COVID-19.Distributions:If so, 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 anIRA) 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that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").Loans:Payments on a 401k loan taken under the CARES Act must be paid back starting in 2021 over a 5 year term.Here are the details regarding the loans:NEW LOANS:The CARES Act which was enacted to provide relief to individuals impacted by COVID-19 allows for increased 401k loans and more flexibility for repayment of these loans.Specifically, you must be an individual who meets one of the following conditions to demonstrate that you have been impacted by the crisis (and it will be your responsibility to retain documents in your files that demonstrates that you are a qualified individual):Individual who is diagnosed with COVID-19, with a CDC-approved test;Individual whose spouse or dependent is diagnosed with COVID-19, with a CDC-approved test; ORIndividual who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or other factors as determined by the Treasury Secretary.On or before September 23, 2020, such individuals take a 401k participant loan subject to the following terms:Maximum Amount of the Loan: 100% of their 401k balance not to exceed $100,000. Please note that per the multiple loan rules, the amount of the loan must be reduced by the highest outstanding balance of any other 401k participant loan over the prior 12 months (regardless of whether such other loan is currently outstanding).Monthly or Quarterly Payments: The loan must be paid back in equal monthly or quarterly payments of principal and interest.Interest Rate: The interest rate is equal to prime plus 1% (or CD rate plus 2%) and is a fixed rate that is set at the time that the loan is taken.Term of the Loan: Five-year term unless the proceeds of the loan are used to purchase a primary residence in which case the term of the loan may be up to 30 years.First Payment:For monthly payments, the first payment that would otherwise be due is delayed until January 2021 (e.g. if the first monthly payment would have been due on May 15, 2020, it will be due on January 15, 2021).For quarterly payments, the first payment that would otherwise be due is delayed until the first quarter of 2021 (e.g. if the first quarterly payment would have been due on May 15, 2020, it will be due on February 15, 2021).EXISTING LOANS:The CARES Act which was enacted to provide relief to individuals impacted by COVID-19 allows for increased 401k loans and more flexibility for repayment of these loans.Specifically, you must be an individual who meets one of the following conditions to demonstrate that you have been impacted by the crisis (and it will be your responsibility to retain documents in your files that demonstrates that you are a qualified individual):Individual who is diagnosed with COVID-19, with a CDC-approved test;Individual whose spouse or dependent is diagnosed with COVID-19, with a CDC-approved test; ORIndividual who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or other factors as determined by the Treasury Secretary.If you meet the above conditions:You may delay making any 401k loan payments due between 3/27/2020 and 12/31/2020.You must commence making loan payments in January 2021 (or the first quarter of 2021 if your loan payments are due on a quarterly basis).If you elect to delay making such loan payments, the term of your loan will be appropriately extended. For example, if there are 10 monthly loan payments remaining on your 401k participant loan and the next payment is due April 15, 2020, you can elect to delay making such payments until January 15, 2021 and at that time would need to make 10 more monthly payments through October 15, 2021.

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@Chris Szepessy that is correct. But you will pay taxes on it eventually. The question I would pose is “do you believe tax rates will rise towards your retirement”? We have historically low tax rates today. The former comptroller general of the US believes tax rates must double to pay off the INTEREST on our debt within 20 years...

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Per the IRS guidance, having work hours reduced is specifically mentioned as a basis to take a distribution:https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

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All the income from the investments that your 401k owns belong to the 401k (not to you personally). Of course this is your account so you can take a distribution from it at any time, subject to applicable taxes and penalties for early withdrawal.

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Even though it's penalty free, you still have to pay taxes on the amount withdrawn. So you do save the 10% fee (or however much it is) but your taxed at your normal tax rate. Just something to keep in mind.

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I used the COVID distributions to make a roll over to my solo 401k. My employer would not let me make a roll over until I retire, but the CARES Act let you make a withdrawal that you can repay within 3 years into a qualified plan and it would be qualified as a 60 days rollover. So now I have the best of both world. I can invest in real estate through my solo 401k tax free.

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@Greg O'Brien @Chris Szepessy And what if you have losses to offset those taxes due? For example, A real estate professional or a joint filing couple could write off 100% passive losses from real estate against taxes due for a 401k withdrawal. Or even an active investor making less then 150k could write off 25k in losses in a similar manner.Best of both worlds. Penalty free, tax free. Something to think about as well. Of course, consult a CPA :)

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@Chris Szepessy agreed! However, the tax is spread over 3 years, not a lump sum in 2020, according to the Cares Act. It really is a unique opportunity for the right situation.

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@Eva Morel i jus recently did the same thing too,due too covid was able too take a withdraw & used it too also get my 2nd rental,i think its ok,i feel as tho its a great investment short term & long term

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@Dmitriy Fomichenko thank you!