Are COVID withdrawals a way to get funds out of my costly 401(k)? Updated Feb 16, 2021; Q. If I took a COVID withdrawal from my 401(k), I know there is no income tax due if it’s paid back to a qualified retirement account within three years. Is it correct that I don’t have to pay it back to my 401(k), which has horrendous fees? I’m thinking this could be a strategy to get the funds into an IRA. — Investor Let’s go through how this all works. Penalty-free distributions taken from qualified accounts under the CARES Act needed to be taken by Dec. 31, 2020 and only qualified individuals were eligible to take them.