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Financial advisors generally recommend that people resist the urge to withdraw money from retirement accounts to pay for current expenses. Since retirement funds benefit from compound interest, withdrawing money early can have an oversized effect on the ability to retire comfortably in the future.

The COVID-19 pandemic has caused millions of people to lose their jobs, fall behind on housing payments and struggle to afford necessities, such as food. Even before the pandemic, people sometimes found themselves in difficult circumstances and didn’t know how to cover their bills. 

In some situations, you may have no choice but to withdraw money from your retirement savings. Before you do so, make sure you understand any penalties and tax implications and explore other options.

When to Consider Taking Money Out of Your Retirement Account
Don’t withdraw money from your 401(k) or IRA unless you’re facing a financial hardship, such as a job loss, a major reduction in income or exorbitant medical bills. If you need to withdraw money, only use it to cover vital expenses, such as your mortgage or rent, utilities, medical bills and food. 

Under other circumstances, look for ways to reduce spending and/or increase your income to make ends meet. Falling behind on your bills may be a wakeup call that indicates that you’re overspending on things that aren’t necessary and that you need to reassess your priorities.

Penalties for Early Withdrawals 
If you pull money out of your 401(k) or IRA, you may have to pay a penalty. Retirement accounts allow early withdrawals under some circumstances and federal law eased some restrictions in response to the pandemic. 

If you deposit pre-tax money into a retirement account, you will have to pay taxes on money you withdraw after you stop working. If you take money out sooner, the withdrawal may be taxed. 

Other Ways to Cover Expenses
If you’re struggling to get by because of the pandemic, you may be eligible for unemployment benefits or other forms of government assistance. You may qualify for a state or local program that can help you with utility payments, heating fuel, food and other expenses. 

Your mortgage and auto lenders, credit card issuers and other companies you do business with may be willing to modify your payment plan or allow you to take a break from making payments. You will have to reach out to those businesses to request assistance. Get in touch before you fall behind on your bills. 

Be Careful When Tapping Into Retirement Savings
If you’re strapped financially right now, you may feel that using money set aside for retirement is the only way to get by. Before you do so, explore other options and make sure that you understand any penalties and taxes that may apply. Only withdraw what you need to cover essentials and leave as much as possible set aside for your future.