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October 22, 2009

Should I cash out my 401K?

Posted: 06:00 AM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KRIS:

I've fallen into severe debt and am trying to cash out my 401k to satisfy my debts. When I told my investment company I wanted to do so, they told me that since I'm still repaying a loan from my 401k, I can't cash it out. When I asked if I could use the available funds to satisfy the existing loan and have the remainder cashed out and sent to me, they balked. Is there any recourse I have and what steps do I need to take in order to have the funds ASAP?

CLARK:

Well first, everybody's telling you can't do this and I'm telling you not to do it, even if they say you can.

You don't solve a problem by wiping out your retirement funds to deal with the debt.

The real thing that eats you up with that is the tax burden.

A typical person who does a withdrawal from a 401k pays, with taxes and penalties, 40% of that amount of money in taxes.

So if you take out $10,000 you actually only have $6,000 that you can use for debt, you're going to have to have that other $4,000 to pay tax next April.

Instead, attack debt one step at a time.

If you need help negotiating, you need help working out a plan, go to your NFCC affiliate, check them out at nfcc.org, that's the National Foundation for Credit Counseling.

Filed under: 401K • Clark Howard • Living • Retirement


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greg   October 22nd, 2009 4:52 pm ET

A loan against your 401K or 457K is not a bad idea. You will be paying yourself back about 9.5% interest and don't pay any taxes. If you cash out under hardship you must pay back taxes and most likely in a higher income tax bracket because you add this amount to your adjusted gross income at the end of the year. So if at all possible pay back your current loan and try to get a higher loan. I think most plans allow a 50% loan of the balance not to exceeed 50,000.


Froggyalley   October 22nd, 2009 5:10 pm ET

I seriously believe cashing in my 401K is the only way I will ever be able to repay my debt. Despite the fact that I have not used my plastic in years...YEARS... my payments continue to crush me as my interest rate have escalated to the max (29.9% from 4.9%), my available available credit has decreased to a few dollars above my limit, and my balances never decrease despite never being overlimit and never being late. I am close to retirement age (62) and there just won't be the income to pay my creditors if I retire...if I lose my job and am forced to retire. Perhaps this is because my credit reports are mungered in with my exhusband who declared bankruptcy with his 56...FIFTY-SIX...creditors. I really don't care. I just want the hemorrhaging of every penny I earn to STOP. I cannot live like this.


maria lopez   October 22nd, 2009 10:17 pm ET

I OWN $50,000 IN CREDIT CARD, I HAVE NOT PAY MY CREDIT CARD FOR THE LAST 2 YEARS BECAUSE I LOST MY JOB I HAVE A FAMILY MEMBER TO LEND ME A LOM SUM TO PAID OFF MY CREDIT CARD DEBT, SOME OF MY CREDIT CARD COMPANY THEY ARE SENDING ME OFFERS TO SETTLE FOR LESS THEM WHAT I OWN WHAT SHOULD I DO, SHOULD I NEGOTED DIRECTLY OR SHOULD I FIND A PROFESSIONAL COMPANY TO DO SO IN MY BE HAVE.
THANKS YOU
MARIA


Kathleen OHanlon   October 23rd, 2009 11:20 am ET

I was laid off from a job that I had worked for seven years. I had over 10 percent taken out every week. I had accumulated about 12,000 through AIG. I also have other mutual funds that amount to about 22,000. Should I combined them or leave the AIG account alone?


marie   October 23rd, 2009 2:18 pm ET

clark in good faith i went to one of those training facilities for medical billing and coding (formerly GMI) . The promised after completing the course with certification they would help with employment. After doing so this is not the case. They refuse to help now I am stuck with the studen loan i took out. Question how can I get help with stopping the interest and making payment to SLM


Beth   October 27th, 2009 4:56 pm ET

I cashed out my 401K after losing my job, fully realizing I would lose 40% of it. My debt was crushing, and impossible to pay back without a job. Paying off my debt ended my sleepless nights and stress. Just having my life back was worth the 40%!!!


William   October 28th, 2009 11:32 am ET

The money in the 401 was pre-tax. Will you be paying tax on it at some point? Isn't the difference the 10% penalty? That penalty is less than the interest rate.


Johnny Educated   October 28th, 2009 11:46 am ET

The best advice I ever received (and implemented)...get an education and a better job. NO excuses, if you truly want positive results.


DaveL   October 28th, 2009 11:50 am ET

Good Luck in retirement, but I know its tough situation you are in. Without a 401K I don't know what anyone could do. Pensions are disappearing unless you are a government worker. Our paltry pensions are frozen as of Jan 1st. So its the 401K and SS. The loan from the 401K is certainly the better option to retire the credit card debt. You lose out on current growth, but this stock market must start to go sideways or down after the latest run up. The money in the 401K is essentially magic money – it does not get taxed, it can actually grow without the government pulling money out. Try that with an after tax savings plan. After inflation the government will hit you with the highest marginal taxes and your real investment income may actually be negative. I would not trust to SS my future. You may wind up as a Wall Mart greater in your 90s.


Joe Unger, San Francisco   October 28th, 2009 12:07 pm ET

Where is Greg getting this 9.5% interest rate? Interest rates are low so his number is way too high. Also, you will be making your loan payments with after tax money. When you do withdraw your money from the 401(k), all of your payments will be subject to taxation again.


Jimbo   October 28th, 2009 12:23 pm ET

I did what Beth Did! I don't care, I have less stress now.


Kelly   October 28th, 2009 12:28 pm ET

I believe your loan should also be distributed with the rest. It will be in addition to the cash payout. If you are still employed by the company with whom you have the 401(k) you may not be able to remove all the funds (or any depending on the plan documents). If you are no longer employed with the company you should be able to remove all money including the loan. They will withhold 20% for federal taxes and if you are under 59 1/2 you will also be subject to a 10% penalty due at tax time.


Jon   October 28th, 2009 12:30 pm ET

A loan from a 401(k) loan is a LOUSY idea. First, you lose the growth that your money might otherwise provide; second, you destroy the tax advantages by using after-tax dollars to replace the pre-tax dollars you borrowed; and third, you run the risk of being forced to repay the entire balance, or incur a whopping tax bill, if you leave your job before the loan is repaid.

Those are just the reasons I could think of, off the top of my head; but there are others, such as "with which money do you plan to fund your retirement, if you have no 401(k)?" The 401 (k) was intended to be a RETIREMENT account, not a piggy bank, a Christmas Club or a rainy-day fund. If you are in debt, stop your contributions, if you must; but if you raid that account now, you will find yourself, one day, too old to work and just as much in need of funds as you were when you raided your account.


Bug   October 28th, 2009 12:38 pm ET

You don't have to cash out 100%. I got the "don't do it" song and dance and yes it was a hefty penalty. I cashed out 50% and paid off half my bills. Then the market tanked and I lost as much as if I had just pulled it all out at once. If you lost a lot of value I would leave it in the market since that is the only way you'll get any of that back. – Marie you would have to hire an attorney and go after them for breach of contract.


bob   October 28th, 2009 12:51 pm ET

Marie - You are stuck with the student loan. Sallie Mae is very unforgiving and will tell you, if asked, that failure to find employment in your field is not a reason to get out of your loan. SLM is really about them making money and they really don't care that much about what they have to do to get repaid. Get your SLM loan in deferment - claim economic hardship - that will stop them adding fees and penalties and trashing your credit for non-payment

Now - transfer your loan to the National Direct Student Loan program. If you are in many fields, like gov't work, medical, ect. you can get your loan balance forgiven after making 120 payments. And the direct student loan people, unlike SLM, are here, not in India, so you are actually dealing with people who know what they are doing and are, unlike SLM, very nice. Also lower interest rate.


scott   October 28th, 2009 12:57 pm ET

I was unemployed for six months, cashed in my 401K, mainly to role over into an IRA, but also to pay RENT! Try being homeless with an eviction in your credit rating while trying to find a job. Luckily I never had to find this out, but the company handling my 401K, didn't mail check to me when they said they did, and I had to pay a late fee on rent because of this. Mr. Howard sounds like the same guys telling me to keep my money in a 401k no matter how much it's losing because it will make att of it back and more through some miracle. "PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RETURNS!"


Richie   October 28th, 2009 12:59 pm ET

Is it true? – If you are over 55 you can cash in your 401K with out the penalty?


Huge591   October 28th, 2009 12:59 pm ET

Dude call a debt settlement company, but do the research. It will kill your credit for a while, but reduce the amount you owe by at leat 40%. Make sure the company is registered with BBB and is in good standings. This is better than bankruptcy, because its max three years, and you are out of debt. First thing you will need to do is close the account once your accepted. Next get ready for calls from creditors, but you will be told to ignore them. It works, and will get you out of debt sooner than later. You don't cash in your 401K, and in three years you start fresh.
This is the big thing. You can only have one card open and it cannot be one that you are paying off while in the program. You must maintain zero balance on that card. I myself will never use a CC again. Pay cash for everything.


Al   October 28th, 2009 1:16 pm ET

I have 15K in my 401K and would like to cash out even with the 40% penalties and taxes. Can you do it even if there is no hardship? I would like to pay off a credit card.


Betty   October 28th, 2009 1:17 pm ET

My feeling is do whatever is necessary to survive. It seems that the financial gurus like Howard, Suze Orman and Jane Chatsky are richer than Midas and have no clue how bad things are for some Americans right now. For someone who hasn't seen a paycheck in more than a year, telling them to chip away at debt a step at a time is senseless advice. How about these rich financial advisors giving some of their followers who have fallen on bad times a micro-loan (say, $5,000-$10,000) at a very low interest rate to help tide them over for a while?


Kim   October 28th, 2009 1:42 pm ET

My employer filed for Chapter 11 protection this spring and new owners took over in July. Employees took an 8% pay cut and our employee savings plan was terminated. I took my savings out in a lump sum to pay off debt. Granted there was the 20% tax and the 10% penalty I will have to pay come tax time, but it was well worth it. Any interest I would have earned by rolling over my account could have never kept up with the interest I was paying on my bills. The only thing I owe now is my mortgage and I cannot tell you how good that feels! Between the decrease in my pay and putting $6000 in an IRA that will qualify for a tax credit, there will be a pretty good dent knocked out of the 10% penalty. I know all the experts say this is the absolute worst thing to do but I will tell you I am on firmer financial ground than I have been on my entire working life. One caveat if you are thinking about doing the same – close out every credit account you have and guard against going into debt at all costs!


Paul   October 28th, 2009 2:39 pm ET

Absolutely do not cash out your 401K!!! It is real cash reserved for your future and tax deferred. Approach it as if it doesn't exist and deal with your debt as is. Your exhuberant life style funded by easy credit is over. Now, live within and your means and pay your debt as you go.


Tony   October 28th, 2009 3:18 pm ET

Clark is right. Drawing cash from a 401K should be an absolute last resort. The real problem is the debt. Working with creditors to reduce (or eliminate) interest rates and to set up a palatable payment plan is the best way to go. Most creditors would rather "give" on the interest rates than to see someone go bankrupt, and chance getting little to nothing of the total debt. Be tough but professional. Make the creditors understand that you want to work with them but if they don't want to work with you, you may have to default altogether. If you can't do this yourself, then hire a professional. There are several organizations that will negotiate on your behalf, and most are without fees. Good luck!!!


Terri   October 28th, 2009 3:41 pm ET

A loan against your TSP balance is only 3%. I haven't needed to take out a loan against my TSP, but I can understand why some would consider that a better idea than paying the rates that banks charge for a consumer loan.


joe   October 28th, 2009 3:49 pm ET

the advice in the initial article is good but it doesn't answer his question. They came her for an answer to a specific question, not to be lectured like a child.


Richard Aronson   October 28th, 2009 3:50 pm ET

Having dealt with unemployment and retirement accounts recently, I'd never recommend cashing out your 401-K. There are, however, two ways to get money out of your 401-K without owing penalties.

The first is mentioned above. You can borrow from your 401-K for several purposes. I don't know if debt relief is one of them. But perhaps you could borrow for some other reason that is a partial contributor to the debt, such as mortgage payments.

You can also withdraw from your 401-K to make qualified medical payments. If you are out of work, that includes COBRA. You may be able to tap your 401-K to pay current medical insurance if employed, thus freeing up that amount to pay back debts. This too could avoid the 10% penalty.

As for Froggy Alley, your problem is not your debts; it's your ex husband. You need an expert involved to sever your accounts from his, else your husband can continue to grow the credit limit on cards on which you are a partial debtor (because he opened those accounts before your divorce) and then the companies will go after you for his new debts. You'll NEVER get out of debt until you solve the root problem, even if you could withdraw all of your 401-K and pay off everything he owes, because as long as your name is still on an account, he can charge things to it.

You probably need your divorce lawyer and judge involved, and bankruptcy may be an option worth considering which could preserve your 401-K and clearly sever your ex's problems going forward. Good luck.


Garrett m   October 28th, 2009 4:03 pm ET

Do not fear paying taxes. Withdraw your 401k if you need to. Pay the tax and penalty. You can easily lose 40% to the 'Market'. It's your money.


tim   October 28th, 2009 5:02 pm ET

Clark didn't answer the question. What are the steps to take to get the funds – another specialty lawyer ?


Brian   October 28th, 2009 6:29 pm ET

Everything depends on each individuals circumstances. If you are crushed by debt and have retirement savings and a little time on your side I would cash out and get rid of debt. It's funny how investment professionals tell you to keep your money in investments while you are buried in debt. Bad advice. Debt will destroy you. Middle class folks should pay down debt first.


Ron   October 28th, 2009 7:24 pm ET

I hate when "Money Experts" give this kind of misguided advice. You can loose 40% by withdrawing the 401K money early, you can lose your shirt by holding credit card debt!

1. Find out exactly how much money you would need to take out of your 401K to cover your credit card. Example: if you were charged 40% penalty for taking out the money early, and you had $6000 debt, you would need to take out $10000.

2. Take the amount you owe now (eg $6000). Go to an interest calculator site (there are many online). Put in the rate at which you are charged interest (eg 30%) and the compounding period (in most cases it's monthly). Increase the time period until the total amount reaches the amount figured out above (eg. $6000 of debt in 2 years at 30% interest will be ~ $10800).

3. Divide the amount above by the time period (in months) that it required to reach that number. (eg. $10800 / 24 months is about $450).

4. If you can afford to pay $450 per month (or whatever number you came up with above) to the credit card company, DO IT! and DON'T SKIMP! If you can not, you need to withdraw the money from your 401 K because you are going to lose more money paying the credit card, because you will hold the debt longer than the penalty for early withdraw on the 401K plan. (Yes, I realize that I'm neglecting the ~11% average increase in valuation on the 401K account over the 2 years time, go ahead, calculate that in with it if you want)

5. Slap yourself on the wrist for getting into this situation, cut up your credit cards and stop living beyond your means


david   October 28th, 2009 7:29 pm ET

Withdraw the money. I agree with Beth. It will end your sleepless nights and you get a fresh start without hurting your credit rating. You will pay taxes on it some day. Maybe not 40% but you will still pay a lot of taxes...don't be fooled. Also you made 100% interest on the portion your employer matched. It all comes out in the wash.


Dan   October 28th, 2009 9:32 pm ET

You can typically renegotiate your loan terms because the company would rather have you pay the debt then default on the loan. Go back and read Howard's comments on contacting the NFCC for help with this. No one will ever give you a loan to retire. However, you can work for the rest of your life and never retire but that's not usually a popular option. Simply put, pulling money out of your 401(k) is always the most expensive option and great way to get on the path of never retiring. Its also easy to do and the most harmful to your long term goal of retiring. Simply getting rid of debt with a very expensive long term consequence is not worth it. Its trading one problem for a much larger one later. Take a deep breath, watch Dr. Phil and then start making smart decisions instead of continuing down a path that hasn't been working and never will.


Barry Ziegler   October 28th, 2009 10:18 pm ET

Heads up, folks! Listen to Clark. When he suggests a solution it will be one that causes the least pain while helping you manage your problems in the most efficient, practical, and sensible manor.

DON'T trust your emotions, DON'T rely on advice from otherwise under educated buddies, DON'T fall victim to a debt resolution scam!

Ole Nokomis Barry


stan   October 29th, 2009 12:07 am ET

i dont get it – how can you save if you have a heavy debt load? where is the sense in that? show me the math please.

no reasonably safe investment vehicle will yield long term returns that outpace the interest rate charged on most consumer debt.

it doesnt matter if you earn money tax free, you cant get ahead if your cost of money is higher then the yeild it returns!


Fluffy Slippers   October 29th, 2009 12:20 am ET

All I have to say is Dave Ramsey. Look him up. He has helped thousands get out of debt.


Jeff   October 29th, 2009 12:52 am ET

Stan, you pay off your debt, then save. It takes discipline and years, but it's well worth it.


Steve   October 29th, 2009 7:03 am ET

Just file for bankruptcy and stick it to the credit card companies as they are sticking it to you. If you feel some kind of ethical remorse at doing this, keep in mind that given the predatory interest and fees they charge you you have likely already paid back what you borrowed in full and then some. Just do it and be done with it. You bailed out these banks after all... Let them bear some of the burden. They cannot touch your home or retirement in most cases so whats holding you back?


Mark   October 29th, 2009 7:08 am ET

Even if this is just a thought by many Americans goes to show how irresponsible they are with money. How can you rack up 50k in credit card debt or have 56 creditors? Yeah maybe some of that is the creditors fault for allowing you to do that but seriously you have to be accountable for your own dumb financial decisions. I wish there were rules in place that didn't allow anyone to cash out their retirement until they, you know, retired. And that loans from 401ks were available for only a few things such as preventing foreclosure or eviction. If you really need to get out of debt get a second job, who cares if it's a job waiting table or in a retail store. You hve to be willing to sacrifice something and most people aren't. It's a shame really.


Jeff   October 29th, 2009 8:21 am ET

Alot of Americans are in the same trouble with debt. Some worse than others. Before anyone does anything please take a look at Dave Ramsey's plan to get out of debt and build financial peace. His system is not easy, but it has good tools and plans to help you figure out your financial position, learn how to fight your way out of debt, build an emergency fund, develop a solid budget and then pay off your house and save for college and retirement. Hard work but people that follow this plan can eventually remove the stress of debt. I concur with Stan, you can't save when you have high interest debt. The first thing you have to do is stop spending on credit, which isn't easy, and I know its alot harder in difficult economic times. I know, I've used credit in the past and am working hard to pay it off, we all do stupid, now is the time to stop using debt to dig a deeper hole and start getting out.


John   October 29th, 2009 9:06 am ET

Clark, You didn't really answer Kris's question. I'm sure he realizes already that cashing out your 401k early is a last choice. It's fine and prudent to mention that again, and lay out the costs of doing so as you did. But after that, he really does have a question that if answered could help other people make decisions about their 401k choices.

Namely, does taking a loan against your 401k prevent you from being able to access those funds in an emergency? Are there laws or regulations that cover this? What are your rights as the 401k contributor to access those funds?

There are also situations in which the 10% penalty for early withdrawl can be waived, which can reduce the 40% hit on your balance. A brief overview of these exemptions could also be helpful to Kris and others.


Starcruiser   October 29th, 2009 9:36 am ET

Well, everybody is starting to realizie there's something strange going on here in America and that is IT'S A RIGGED GAME....Sorta like the games at the fair...There's no way you can win....All they want is you money in exchange for a $5 stuff animal..I never put a dime in a 401K simpley because it had tax ramifications, tnus you could be controll by the IRS from withdrawing it...Yes, every Insurance Co's dream...And now they don't only run this nation, but have control of your mean of retirement. You really think BIG BUSINESS wants you to retire ? IF you do..you deserve to have your money in a 401K.


Chris   October 29th, 2009 9:46 am ET

Cash in your 401(k). Pay off all your credit cards and any debt you have. Start living within a reasonable budget, and stop wanting things you can't afford. If you own a house, use your 401(k) to pay it off. The fact that you will be taxed 40% is unfortunate, but maybe the government should look into that now that we are all out of work and need to tap into our "other" savings.


Mike   October 29th, 2009 10:02 am ET

Do not cash out retirement, and do not go to a professional to settle your debts. Credit card companies will often settle for about 50% of balance if you haven't paid in a couple of years. "Professionals" will just charge you several hundred dollers for the same thing. The late night TV ads and newspaper classified ads are usually rip-offs. Consumer credit counseling is about the only national legitimate credit agency, but even they are locally run, so they vary from location to location. Bottom line is you cannot create money. If you cash out retirement now, what are you going to live on in the future? The ONLY way to survive no matter how much debt you have or how much you make is to spend less than you make. You must be pro-active.


Jim   October 29th, 2009 10:18 am ET

I was in the same situation, deeply in debt after a series of unexpected major expenses over years. I was able to make my monthly payments and have a perfect payment history on my credit reports, but I wasn't getting ahead and paying things down at all ... it would've taken decades since I didn't have enough income to make much over the minimum payments. And the credit card companies smelled blood in the water, so of course they jack up interest rates to the max, making it even more impossible to pay down debt. In the abstract, of course, it's a bad idea to take money out of 401k and have to pay the fees and taxes. But experts who say blithely to "pay down your debt one at a time" just don't seem to understand the daily stress of making payments only to see 90% of it go to interest. For me, paying the fees and taxes for a 401k withdrawal was well worth it in terms of my peace of mind and quality of life. I slashed my debt dramatically, to the point where I now *can* attack it and pay it down. And once that's done I can jack my own 401k contributions back up to the max to rebuild my nest egg. I just couldn't see being miserable and paying thousands in interest today, just to protect a nest egg that, honestly, I might never use if I get hit by a bus tomorrow. I'm 45, single, with no kids to support though. If I had a family, my decisions might have been different.


Steven B   October 29th, 2009 10:39 am ET

I was laid off last year and cashed out my 401k to help me survive. What I should've done that I didn't was transfer the 401k to an IRA at which point I wouldn't have paid the 40% tax fee when I would've withdrawn it.


Kevin   October 29th, 2009 10:48 am ET

If you want to save stop smoking. Currently at $6.00 a pack and a pack a day habit you are throwing away $2190 a year. $4380 a year if your spouse smokes or you have a 2 pack a day habit. I only say this because I see so many people smoking and they have no money. It's all about sacrifice. A two pack a day habit for a household costs $21,900 over a 5 year period. If you don't smoke give something else up. Most people that complain they don't have any money still hold onto some vice they also can't afford. If you can't pay your bills you have no business drinking, smoking, going out for dinner, playing golf, shopping for halloween costumes, etc. It's this kind of spending that has most people in the poor house today. Cut your cards up today and stop whining. Dave Ramsey is a great source to fix your financial problems.


Angie   November 4th, 2009 9:13 pm ET

It is pretty sad that we have had great credit scores but due to the cc companies lowering our available credit limits it has lowered our scores and made it impossible for us to refinance our home to have more funds to pay to debt. We dont use our cc anymore and are trying to get ahead but they (cc companies) sure dont act like they care whether they drive us all to bankruptcy!


sdbind   November 8th, 2009 3:55 am ET

These absolute "don't touch your 401K" rules drive me batty. I currently have CC debt that takes everything we have to pay each month. Part of our problem is that due to a credit reporting error cc companies slashed our limits and took us from about 50% to well over 90% of available credit. The credit bureau fixed the error, but the cascade of limit reductions can't be undone. Because I am over 90% available credit, my credit rating is too low to refinance at historic low rates. CC companies are also raising rates and raising minimum payments. I could barely scrape by for two more years paying 17% at which time I could take out a 401K loan, or I could cash out my 401K now, pay the cards down, reduce my payments enough so that in two years they will be completely paid off without taking out another 401K loan. That should also give me enough available credit that I can refinance my house, saving even more. I have spent the better part of the past year blindly following the "never cash out" mantra, until finally running the numbers to realize for my situation it is stupid advice.


Tony   November 8th, 2009 2:57 pm ET

I was just laid off from my job. I have about $45,000 in a profit sharing plan that I am fully vested in. What should I do????????????


JE   December 1st, 2009 11:44 pm ET

Everyone's situation is different – so many of you advocate leaving 401K alone and 'dealing' with the debt. In ALL of those situations, you assume one has the income to deal with the debt!! In this economy, my self-employed husband has seen his business dwindle to nearly nothing. He has been looking for employment in the corporate sector for over a year with NO results. It would cost me more in childcare than would be feasible for me to go back to work, assuming there are even jobs out there for me. We could each work several parttime jobs flipping burgers, but again there are no guarantees. We are competing against many other unemployed people out there! It makes sense to us to go ahead and bite the proverbial bullet and cash out the 401K. Even after taxes, we would have enough to pay off our house (which is nearly ours, but with no income could go into foreclosure), and any debt we've amassed in this past year during the 'Great Job Search'. It would be MOST devastating to us to lose all equity in a home that is more ours than the bank's at this point, and we would survive with our credit intact, and the ability to rebuild our retirement. Granted, we wouldn't make up for the 'loss of interest' on the funds, but they WOULD eventually be taxed anyway. Nothing is free, and you know the government is going to get theirs!!


Chuck   January 1st, 2010 7:54 pm ET

These are very interesting comments. I am sure Clark would agree that everyone's situation is different and one size does not fit all. There is more than one tragedy when someone is forced to tap their 401K for a loan. Most have been addressed already. Some do not have the option of attacking their debt as Clark suggests, others have immediate needs (lawyers fees for example). Credit card debt elimination is a poor reason for getting a loan on your 401K, but in some circumstances it may make more sense. If you do not keep your credit cards paid each month your credit card interest rate escalates and everything including auto and life insurance rates skyrocket. Again look at the whole picture. As for those that chastise people and tell them to "live within their means" (a good point to be sure): life happens! We are all in this together, let us try to help and not judge others. None of us are perfect.


Larry   March 27th, 2010 12:27 pm ET

I lost my job at the end of December, 2008 have not worked since. to keep up my mortgage payments, I gradually cashed out my entire 401K. I realize now it was stupid. Can I characterize it as a hardship loan and repay it or it is too late?


Teri Green   April 10th, 2010 8:10 pm ET

I've read the comments and answers, it seems interesting and points directly to issues pertaining to what the reader is in it for. well for me i think the best for everybody should have done while they were still on an early period is to plan your retirement from the very beginning. Atleast some of the questions here and situations are almost into that and have not yet "retired" or had retired already before asking these questions. Thanks for having this site, it really helped a lot of our retirees.



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About this blog

Clark Howard helps you become a wise consumer. We know you're busy, and that's why Clark's tips are quick and effective. He'll arm you with the information you need to make smart choices. During these tough economic times, Clark wants to help you save more, spend less and avoid getting ripped off!