PENSION savers needing access to their 401k cash can make penalty-free withdrawals during the Covid crisis.
We explain who's eligible and the risks you need to be aware of.
A 401k allows you to dedicate a percentage of your pre-tax salary to a retirement account.
Employers can also choose to match some or all of the contributions, but this isn't required so it's not guaranteed.
There are two basic types of 401ks - traditional and Roth - with the main difference being how they're taxed.
In a traditional 401k, employee contributions reduce their income taxes for the year they are made, but they'll pay tax when they withdraw cash.
DON'T know where to start? Here are some tips on how to get going.
With a Roth, employees make contributions with post-tax income but can make withdrawals tax-free.
Most employees can currently put in $19,500 a year of their own money in a 401k account, excluding employer contributions.
However, workers who are older than 50-years-old are eligible for an extra catch-up contribution of $6,500 in 2020 and 2021.
You'll generally have to pay a 10% early withdrawal penalty if you take the cash out before you reach 59 1/2 years old.
You also have to pay normal income taxes on the withdrawn funds.
However, last March, former President Donald Trump signed an emergency stimulus bill that lets those affected by Covid withdraw up to $100,000 without the penalty, even if they're younger than 59 1/2.
Account owners also have three years to pay the tax owed on withdrawals, instead of owing it in the current year.
Alternatively, you can repay the withdrawal to a 401k and avoid owing any tax.
To qualify for the exemption, you, your spouse or a dependent must've been diagnosed with Covid-19.
Alternatively, you must have experienced "adverse financial consequences" due to Covid, which could include a lay-off or reduced income.
There are also other exceptions to the penalty, such as using the funds to pay for your medical insurance premium after a job loss.
Plus, you can take penalty-free withdrawals if you either retire, quit, or get fired anytime during or after the year of your 55th birthday.
This is known as the IRS Rule of 55.
If you're using the Covid rules to withdraw cash from a 401k, keep in mind that you'll need to pay tax on it or repay the withdrawal.
You also face a shortfall of cash in retirement, unless you already have enough money saved elsewhere.
In November, Fidelity said the average amount withdrawn of those who took advantage of the rule was $10,000.
It may seem small but it could eventually grow to be a significant amount if left untouched due to the benefits of compound interest.
For example, if you’re 35, a $10,000 nest egg could grow to more than $100,000 by the time you’re 70, assuming a 7% annual return.
Carrie Schwab-Pomerantz, a certified financial planner and president of the Charles Schwab Foundation, has previously told CNBC: "Even if it’s possible to borrow from your 401k or take a distribution, consider this a last resort.
"While present circumstances may be difficult, I’d counsel anyone to avoid jeopardizing their future retirement unless absolutely necessary.
"You may not appreciate the full consequences until much later."
Pension savers could get up to $1,000 in extra cash a year thanks to a new proposal in the Senate.
We also explain how long your 401k will last and how to calculate it.
Plus, check out these 20 ways to live comfortably off your social security check.