Should I Withdraw from My 401k to Pay Off Debt? [The Answer Might Surprise You]

In this video, we’re discussing withdrawing from a 401k to pay off debt, specifically credit card debt – and the real impact of this decision on your current and future financial situation.

Deciding whether to withdraw from your 401k to pay off debt is a complex decision that depends on various factors. Here are 3 main points to keep in mind:

Penalties and taxes: Withdrawing funds from your 401k before reaching the age of 59½ may subject you to IRS early withdrawal penalties of 10%. Additionally, the withdrawn amount is typically considered taxable income, which means you'll owe taxes on it.

Debt interest rates: Compare the interest rates on your debt to the potential investment returns in your 401k. If the interest rates on your debt are high, it might seem tempting to withdraw from your retirement savings to pay them off. Iif your 401k has been performing well and generating higher returns than your debt interest rates, it might be more beneficial to keep the funds invested and continue making regular debt payments.

Long-term impact: Your 401k is designed to provide for your retirement, and withdrawing funds early can cut your long-term savings and potential growth. The money you withdraw loses out on compounding interest and potential market gains over time.

The question you need to ask: Can a withdrawal get me ahead quicker, and back to saving long term?

#401kwithdrawal #cashout401k #creditcarddebt #debtpayoff

[TonysBowlesas]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

[philliplipscomb]

Keep hearing people saying you will be taxed if you be taxed no matter when you withdraw....only problem im having is having to quit in order to close out the 401k

[MLee-hefk]

Really helpful video. Appreciate you laying out the logic and the example. I was thinking about pulling out money from my 401k until I saw this and did the math.

[ZoomedOut]

Welcome to the 401k trap …the “money “ that you hope to become worth more will inevitably provide you with less over time…

[BloomByCC]

Would be so helpful to have some kind of visual in these numbers. Thank you!

[jlprescott]

A 401k is reasonable for the lower interest rate without paying taxes. Cheers!

[blackericdenice]

I just got fired from Nema inc. trucking company in Duluth. Ga. I've been there 17 years and they said I was a reckless driver. The funny thing is, I have no wrecks, tickets or violations. I have $120, 000 in my 401k. I was going to cash out $30k to pay off some credit cards. I changed my mind after I found out it would cost me another $30k.

[gregc]

I considering doing a withdrawl to wipe my student loan, mentally idk that i can take my middle of the month check being thrashed for 4 more years

[DREDALGO]

Why are we required to have a 401k? I don’t plan to ever retire

[calziz]

If you borrow money from your 401k as loan I thought that would be a non taxable option

[KeithElite]

Is it even possible to withdraw to pay off debt? Is debt itself a valid "financial hardship" that will allow a withdrawal?

[StopBeingSoldMedia]

MORE 401(k) VIDEOS TO WATCH:

[davidruiz]

She's beautiful goodness gracious

[NadyaPena-]

you can't withdraw from your 401k to pay off credit card debt so what are we talking about here? The IRS only allows withdrawal for funeral expenses, foreclosure relief, student debt, home repairs due to natural disaster, and a new home purchase (go figure).