If your income has dried up because of COVID-19, you may have had to make some difficult financial choices, including borrowing from your retirement account. Don’t worry if you did; you’re not alone. According to a recent Bankrate survey, more than a quarter of Americans have dipped into their retirement accounts during the crisis. In addition, nearly one in five people are contributing less to their nest egg than they were before coronavirus hit.

In addition, studies show the current financial fallout is disproportionally impacting women. For example, a University of Southern California report found that women have suffered greater job losses during this time than men.

If your savings plan has taken a hit because of the coronavirus, these tips may help you figure out how to stay on track for retirement.


The CARES Act made it easier to borrow from your retirement account. In addition, those who borrowed funds have more flexibility to repay the loan without owing taxes or a penalty.

This has been a saving grace for many Americans, but according to Jennifer Raess, CFP®, a member of the Advice Practice Team at Northwestern Mutual, it’s important to understand the repayment terms: If you don’t pay it back in time, that loan will be considered a taxable distribution. That means you’ll be out even more money as you will owe taxes on what you took out. Make sure that if you can, you’re paying the loan back in a way that avoids taxes and penalties.

In addition, when you pull money out of investments in your retirement account, you’re no longer earning on those funds. “I’d say the sooner you can get it repaid and off your plate of outstanding debts, the better,” Raess says. “But it’s good to balance that with other debt, like credit cards, which tend to have higher interest rates.”

She adds that the right financial advisor can help you map out a plan for tackling debt and saving for retirement at the same time. It doesn’t have to be an either-or situation.


If you have the choice of paying your loan back more quickly than required or paying back a little less now and still contributing to your 401(k), you may want to consider the latter. That’s because you might be missing out on free money if your company offers a match.

“If you’ve reduced your contributions because you previously needed more cash coming to you during the pandemic, it’s easy to forget to go back in and adjust it back up so that you’re getting the full match,” Raess says. “If your situation has improved, it’s time to think about updating your contribution amount.”


The pandemic has underscored the importance of an emergency fund. Without one, you’re more likely to dip into your retirement accounts in the future — which can leave you paying taxes and penalties above the amount that you take out.

“When you have some funds set aside, you can avoid some of those tax hits and penalties and just have the ability to access some cash,” Raess says. “Also, having an emergency fund allows you to keep your money in the market — you aren’t pulling money out that could be earning.”

Experts recommend keeping between three to nine months’ worth of expenses in your emergency fund, depending on your situation.


As you move forward, you may have some ground to make up when it comes to saving for retirement. The good news is that you have some options. While a 401(k) is a great place to build your nest egg, Raess says it isn’t your only option. If your employer doesn’t offer one, you’re self-employed, or you’re simply looking for an additional savings vehicle, an individual retirement account (IRA) is worth exploring.

Traditional IRAs are similar to 401(k)s in that the contributions you make today are tax-deductible. This means they’ll lower your taxable income — and, in turn, your tax liability today. Just keep in mind that you’ll eventually pay taxes on the distributions you take during retirement.

Meanwhile, Roth IRAs and Roth 401(k)s are funded with after-tax dollars, which means you’ll enjoy tax-free distributions when the time comes. There are income limits for who can contribute directly to a Roth IRA.


Once you turn 50, most plans allow you to make additional contributions into your retirement accounts. (Consider it a perk of getting older.) In 2020, you can currently kick in an extra $1,000 per year to IRAs and $6,500 to 401(k)s.

“That allows you to front-load more money into those accounts, which helps balance things out if you weren’t able to contribute quite as much when you were younger,” says Raess.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Recommended Reading