Mrs Jennifer Chapman
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Green Trust Cash When Should You Take A 401(k) Retirement Savings Loan? The rocky economy has left many people rethinking their retirement strategies. Some are delaying it a few more years to continue to build up their retirement savings, while in other situations, one spouse may be retired and the other one working. Despite a current job, they may still be facing financial challenges - too much high-interest debt, a house that they owe more money on than it's worth, the possibility of a foreclosure, or the desire to help out a family member who is out of work. If you're looking for additional sources of money, you may be tempted to take a loan from your 401(k) plan. But before you do, consider that there may be serious tax-related issues associated with your actions. 401(k) Retirement Savings Rules There are many rules and regulations surrounding 401(k) loans. Following are the basics of how 401(k) loans work: * Check to see whether your retirement savings plan allows participants to take loans from their 401(k) retirement savings. Most do, but there are exceptions.
Taking Retirement Savings Hardship Withdrawals If you've run through all your other financial options and there's no possibility of repaying a 401(k) loan, you may be eligible to take a hardship withdrawal. These are generally permitted to help pay for medical care, college tuition, funeral expenses and to avoid eviction or foreclosure. You may have to jump through a lot of hoops in order to qualify for a hardship withdrawal, such as proving that don't have other financial resources available. Additionally, you'll be taxed on your withdrawal amounts - which for some people can be up to 40 percent depending on their state and federal income tax brackets. And if you're under age 59½, don't forget that extra 10 percent early withdrawal penalty. Should You Borrow from Your Retirement Savings? Borrowing from your retirement savings plan can help you stem a financial crisis and get back on a solid retirement savings track. However, there are some important points to consider: The Pros -Unlike a conventional loan, there are no credit checks or long application approval periods.
The Cons
To learn more about your 401(k) loan or hardship withdrawal options, contact your plan administrator. |