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Pulled money from a 401(k) plan for an emergency? What it means for your taxes.

by Andrew Osterland

Under almost any circumstance, tapping your retirement plan savings for cash is a bad idea.

Tax professionals and financial advisors will almost universally tell you to use all other sources of liquidity before you hit your tax-advantaged retirement accounts.

“Certain IRAs and qualified plans are protected from creditors,” said Ryan Losi, a CPA at Piascik. “If you’re looking at bankruptcy, the worst thing you can do is take money out of those plans, pay taxes on it and make it available to creditors.”

But for millions of Americans who have suffered financially as a result of the coronavirus pandemic, retirement plan savings may now be their only source of cash.

Enter the coronavirus-related distribution.

Under favorable terms granted as part of the federal CARES Act passed in late March, eligible individuals can withdraw up to $100,000 — known as a coronavirus-related distribution — from qualified plans, including 401(k) plans and individual retirement accounts.

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