The coronavirus pandemic has left millions of Americans with reduced income or without a job. If you're one of them, you may be worried about how to cover your bills, and withdrawing some of the money in your retirement accounts may seem like the answer.

The Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) has created some new options for getting access to your 401(k) funds. But just because you can get this money doesn't mean you should, since doing so could have long-term consequences for your retirement readiness.

Still, if you have a dire need and no other options, here are the two primary ways you could gain access to the money in your 401(k).

Piggy bank with colorful letters next to it spelling out 401(k)

Image source: Getty Images.

1. A penalty-free withdrawal due to the coronavirus  

If you're younger than 59 1/2, you typically face a 10% penalty when you withdraw money from your 401(k). But if you need to take money out in 2020 because of financial hardship caused by coronavirus, you can take out up to $100,000 without facing this added fee. 

Typically, you're also taxed at your ordinary income tax rate on the withdrawal during the year its made. But if you withdraw funds this year because of the coronavirus, you can pay taxes associated with your distribution over three years instead of all at once. 

The CARES Act also allows you to recontribute money withdrawn from your 401(k) to an eligible retirement plan within three years without the amount counting toward annual contribution limits. 

2. Borrowing from it

If you have a workplace 401(k), most plans have always given you the option to borrow from it. Normally you're limited to taking out a loan of no more than $50,000 or 50% of the vested account balance, whichever is less.

The CARES Act changed the rules, though. Now, you can take a loan valued at up to the lesser of $100,000 or 100% of your vested account balance. 

If you must have access to your retirement funds, borrowing can be better than taking a straight withdrawal since you can pay yourself back with interest. 

But there's a really big downside. If you default on paying yourself back, you'll get hit with the 10% early withdrawal penalty. And the CARES Act won't protect you from that, as a defaulted 401(k) loan doesn't convert to a penalty-free withdrawal even if you'd have been allowed to take one in 2020. 

If you have doubts about your ability to repay your loan, you may not want to take this risk. Moreover, your money won't be invested and working for you until it's paid back, so you still increase the risk of hurting your retirement savings by borrowing. 

Consider other options first

If at all possible, aim to avoid taking funds from your 401(k). Instead, try other options, such as claiming unemployment benefits or using your government stimulus check. But if you do need to use the money in your retirement plan, consider your options carefully. Whether you borrow or make a withdrawal, hopefully once the coronavirus crisis passes, you'll be able to restore your funds and get back on track toward a secure retirement.