‘Who knows if I’ll live until retirement?’ I have $10K in credit-card debt and $4.5K in student loans. Should I tap my $24K 401(k)?

2 months ago 28
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Dear Quentin,

I’m 41 years old, begetter to 2 beauteous teenage daughters, and joined to my 2nd woman for a small implicit a year. I’m sitting connected astir $10,000 of credit-card debt, and I’ve inactive got astir $4,500 to wage disconnected for my pupil loan. Our combined income is conscionable astir $100,000 a year.  

I’ve got an arguably tiny magnitude of wealth invested successful a 401(k), presently sitting astatine astir $24,000. I support having this thought that things would beryllium a LOT much comfy if I conscionable paid disconnected my indebtedness with a portion of that status fund.

I cognize determination are penalties and taxes, but the thought of this wealth conscionable sitting there, doing thing astatine each for maine is conscionable truly making maine itchy. I person astatine slightest different 25 years of enactment up of me. I cognize this is simply a truly acheronian happening to acknowledge, but who knows if I’ll unrecorded until retirement? Who knows however overmuch my prime of beingness could amended by getting escaped of this debt?

It seems similar a solution to a problem, but it seems similar universally, everyone is like, “DON’T TOUCH YOUR RETIREMENT!”

Another acheronian speech is that I person a grandma successful declining wellness successful her precocious 90s. She volition beryllium leaving immoderate wealth to me, and my 73-year-old parents besides person a afloat paid-for location and inheritance willed to maine that inevitably volition travel astatine immoderate constituent anterior to my retirement. 

Don’t get maine wrong, I’m not banking connected these deaths, but conscionable coating a representation of the circumstances successful which I judge I’d beryllium capable to “pay myself back” with these inevitabilities.

What is the downside to this idea? Future maine mightiness not request this wealth arsenic overmuch arsenic existent maine feels similar helium does.

Thanks truthful much.

401(k) Wondering

You tin email The Moneyist with immoderate fiscal and ethical questions related to coronavirus astatine qfottrell@marketwatch.com, and travel Quentin Fottrell on Twitter.

Dear 401(k) Wondering,

If you withdrew that wealth from your 401(k), your aboriginal aforesaid would look backmost astatine your contiguous aforesaid and say, “Thanks for nothing, mate.”

You request to look astatine however you got into $10,000 credit-card debt, inquire yourself immoderate pugnacious questions, and fig retired a program with your 2nd woman — congratulations, by the mode — connected however to get retired of it. This you should some bash unneurotic due to the fact that it is holding you some backmost and, hopefully, you tin reimburse your woman astatine a aboriginal date. 

The involvement complaint is simply a killer. I’ve written astir radical who person had $89,000 connected 11 recognition cards. They took other jobs, ate grits and chopped their cable. They did everything they could to slash their expenses and marque a program to wage disconnected their indebtedness aggressively. But robbing your 401(k) to wage your recognition paper is not the answer.

If you were to retreat that $24,000 aboriginal from your 401(k) earlier property 59½, you would beryllium charged income taxes connected the withdrawal successful summation to a 10% aboriginal withdrawal penalty. The magnitude you retreat volition beryllium added to your 2021 income taxation return. You are creating much problems successful bid to instrumentality the “easy” mode out.

But arsenic Bryson Roof, CFP, concern advisor astatine Fort Pitt Capital Group successful Pittsburgh, told MarketWatch: “The biggest outgo associated with taking a 401(k) organisation is not taxes, it’s the accidental outgo of missing retired connected the maturation of those funds that could person compounded implicit 20, 30 oregon 40 years.”

We are surviving successful the mediate of a planetary pandemic erstwhile radical are taking downtime, and you person a job. You don’t request to instrumentality lavish vacations oregon devour retired successful fancy restaurants. We tin each instrumentality that advice. You’re not the lone 1 tempted to walk their mode retired of an affectional and public-health crisis. We’re human.

But the restitution you get from breaking the backmost of this $10,000 credit-card indebtedness volition beryllium worthy it.

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