Need Money To Pay Bills? Raiding Your 401(k) Is Not A Good Idea

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When you’re short of cash, raiding your 401(k) plan may seem like a good idea. Here are two reasons why it isn’t.

Penalties and taxes. If you’re not at least 59½ years old, you’ll be hit with a 10% penalty for early withdrawals except in certain limited cases, and the money you withdraw will be taxed at your regular tax rate.

Lost opportunity. If your 401(k) earns an annual return of 5% over the next 30 years, an account with a balance of $50,000 could grow to over $215,000. A withdrawal taken and spent today will cost you that growth.

Bottom line: If possible, find other ways to pay your bills, even if that means contributing less to your 401(k) in the short term. While it’s wise to match funds your company provides, you might consider temporarily reducing contributions that exceed the matching amount.

What about loans? A 401(k) loan also has drawbacks. Again, money that’s not in your account won’t grow. In addition, if you lose your job, you’ll have to repay the outstanding loan balance or face tax penalties.

If you need assistance with financial issues including saving your 401(k), give us a call.

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About the Author:

Charlotte founded the firm in 1984. She has over 30 years of industry experience including 11 years working on audits of municipalities in Northern California. She has had extensive experience working with individuals, corporations, estates and non-profits. Charlotte graduated in 1982 with a BS with majors in Accounting and Business Administration from Central Washington University.

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