October 12, 2008
- Roseburg, Oregon
Whatever you do, leave that 401(k) alone
By Herb Weisbaum
When money's tight and there's not enough to pay a big bill, you may be tempted to raid your 401(k) account. If so, you're not alone.
According to a recent survey, 18 percent of workers with a 401(k) took out loans last year. That's up from 11 percent who tapped into their retirement fund in 2006. Financial experts, including Bankrate.com's senior financial analyst Greg McBride, say you should do everything you can to avoid taking money out of your account. "Tapping into your 401(k) plan during financial difficulties can be a permanent setback to retirement planning," said Greg McBride, . McBride says there are two main ways to get at that money. With a 401(k) loan, you take the money out. There are no penalties or interest. You repay the loan with interest to yourself. "That sounds good, except for the fact that that repayment is made with after-tax dollars. For many people that means you have to earn $125 just to put $100 back into the account," said McBride. A 401(k) hardship withdrawal is different. There are taxes and penalties. "You'll pay taxes on the money you withdraw. There's also a 10-percent early withdrawal penalty. So you're going to get less money than you think you will," said Mcbride. Plus you'll be locked out of further contributions to the plan, in many cases for the next six months. McBride's advice: do anything you possibly can -- sell some things, make some drastic expense cuts, work some OT - so you can leave that retirement plan alone. |
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