Dipping into your retirement fund isn’t generally a good idea, but the unfortunate reality is that a growing number of Americans are pulling from their savings. According to the Washington Post, more than 25 percent of workers use their 401(k) or other savings plans for expenses other than retirement.

If you have money in a 401(k) plan and you need to pull it out before retirement age for an unexpected expense, understand that you’ll likely pay the price. Fidelity states that typically you’ll owe income tax on the amount you withdraw as well as a 10 percent penalty fee. But there are limited instances you can withdraw from your 401(k) early without paying the penalty – but you’ll still pay the income tax.

If an emergency arises and you need to rely on your retirement savings, the IRS allows for a limited number of situations when withdrawing from your retirement won’t result in incurring the 10 percent fee. For example, in the event you are permanently disabled or incurred certain medical expenses, you may be able to withdraw without penalty.

If you’re looking to use your retirement savings to pay off credit card debt, you might want to think twice as you will not be able to avoid incurring the penalty for withdrawing from your 401(k).  Instead, you could check your credit report and see if your credit is strong enough to qualify for a personal loan at a low interest rate so that you don’t have to touch your retirement savings at all.

Remember, your retirement savings is key to financial stability once you leave the workplace. The last thing you want do is make a mistake that could risk your savings and years of hard work.

 

About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.