The coronavirus relief package signed into law on Friday removes the padlocks from Americans' retirement accounts, letting workers access money that was previously off-limits with relative ease. As it has done in previous economic crises, Congress lifted 10% penalties for early retirement withdrawals and allowed for more generous loans from 401(k), 403(b), IRA and other retirement accounts.

Among the bill's provisions:

It lets people make early withdrawals from retirement accounts without paying the typical 10% penalty.

It allows people to take bigger loans from those accounts, up to $100,000.

It provides an additional year (on top of what a particular plan offers) to repay those loans.

It lets IRA account holders over age 72 and a half keep more money in their accounts by not requiring them to take a distribution this year.

These changes are crisis measures, allowing Americans to access whatever money they may have as the spread of coronavirus freezes large portions of the U.S. economy. Still, tapping a retirement plan should be a last resort, financial professionals warn. Here's how the legislation changes the retirement plan rules, along with other options for raising money.

Get Breaking News Delivered to Your Inbox

Early withdrawals from retirement accounts

Normally, if you want to take money out of a 401(k), 403(b) or other retirement account before the age of 59 and a half, you'll pay an additional 10% penalty. The government's rescue package waives the penalty for withdrawals related to the COVID-19 pandemic.

"If you've got a legitimate reason, you can start taking withdrawals under age 59 and a half," said Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services. "But you basically have to certify to your employer that it's related to the crisis."

The withdrawal will count as income, so you'll have to pay tax on it, Parrish cautioned. But unlike regular income, people will have three years to pay additional income tax on retirement-plan withdrawals.





Bigger loans, longer terms

Congress has also expanded options for people to take loans against their retirement accounts. Normally, workers are allowed to borrow money from their 401(k)s accounts as long as they take out less than either $50,000 or half of the total balance. The bill raises that limit to $100,000, or the entire balance of the account. It also extends the time people have to pay off the loan by a year, in addition to whatever a particular plan may offer.

A loan can be preferable to a withdrawal because the money taken out is eventually replaced, allowing it to grow over time. But that should be a last resort, experts said.

"Taking money out early means [you lose] a pretty significant portion of what it would have grown into," said Kelly Campbell, CEO of Campbell Wealth Management. "It's not only the money that you put in, but all the growth it does over time."

If you're planning to take a loan from your account, have a plan to pay it back quickly, preferably within a year, Campbell said. That's especially important when stocks have taken a big hit, as they have in the last month, because it means your money has more of a chance to grow when stocks rebound.

Paying it back quickly also means you're less likely to forget to repay the loan and then wind up owing tax on it — something Campbell sees happen far too often.

"Most people who take money out of a 401(k) never put it back," he said. "And when I talk to people that have regrets, their regrets are that they took cash out of their 401k.

Crisis mode

Tapping retirement funds could be an option for Americans with few other assets. However, everyone who spoke with CBS News for this article pointed out that, with stocks at their lowest point in three years, this is one of the worst times to exchange what's in your 401(k) account for cash. That's because you would be selling low after buying high.

Christine Manzo, a realtor in Brunswick, Ohio, thought about pulling cash out of her 401(k) this week. Manzo's husband, a recruiting manager, was recently laid off, leaving the couple to pay increased health insurance premiums on half their former income. Soon after, Ohio went on lockdown due to the virus, and Manzo saw most of her home sales evaporate.

The sharp drop in the stock market also shrank her retirement account. That's a good reason not to make a withdrawal, Manzo said.

"We don't want to take any savings out of our 401(k) or cash in any stocks because stocks are so low," she told CBS MoneyWatch. For now, she's focusing on cutting costs. "We're not buying anything except food or meds, and working out how to do free things with the kids."

Consider other loan options first

For many people in financial distress, cutting expenses may not be enough, especially if unemployment benefits aren't immediately available. If they happen to have retirement savings, that money could be a lifeline.

"The only people who will want to take out the money are people who are absolutely up against the wall, so making it less burdensome is a good idea," said economist Alicia Munnell, director of the Center for Retirement Research at Boston College.

But people should first consider other loan options, such as taking out a line of credit against their home or even applying for a personal loan from a bank, Campbell said. He warned against maxing out your credit cards, however.

"The last place you want to take money is from your credit cards, since you might pay interest rates at 4 or 5 times that amount [for a home equity or personal loans]," he said.