Retirement Funds Are Your Last Resort
Economic and employment issues have been a staggering one-two punch for many Americans. If you’re staring at oppressive debt, monthly bills and household expenses without the benefit of steady income, it can be tempting to raid IRA and 401(k) accounts. Financial experts encourage you to resist as best you can for two primary reasons.
First, you’re mortgaging part of your future. There’s a reason you’ve chosen to make those investments in the first place. Although present times are tough, many people are actually already undercapitalized in retirement funds. Reducing nest egg dollars can eventually have a profound impact of quality-of-life in later years and create a possible need to work longer into the future.
Second, the cost of the money is very high. If you’re under 59½ , any distribution will be subject to taxes at the existing federal and state rates as well as a 10% withdrawal penalty. The infusion of this cash can also have the potential of reducing other tax benefits you may be eligible for.
What’s the alternative? Start by cutting corners wherever possible. Maybe that means basic cable instead of premium packages for a short time and fewer restaurant visits. Consider selling assets that are tied to capital gains and not ordinary income. Borrow against insurance policies and any other source you can think of. If you can avoid pulling money out of retirement funds, you’ll be better off now and in the future.