Everybody knows it’s a sin to raid your 401(k).
Or so people say.
The truth is, sometimes it can be an option if you’re short on cash and faced with, say, big medical or tuition bills, threat of foreclosure or other pressing need. Most company plans do permit loans and hardship withdrawals from 401(k)s, though the rules can be complicated and vary from plan to plan.
Most advisers will say if you have other assets, use them first.
“Withdrawal from a 401(k) should be a last resort,” says Joe Ready, executive vice president at Wells Fargo Bank and head of its 401(k) division. “There are pretty big repercussions.”
But done smartly, with an eye to avoiding the tax penalties if possible and minimizing the damage to the account’s long-term earning potential, your 401(k) can be a lifeline.
Gone are the days when it was considered taboo, or even unusual, to consider touching one’s 401(k) before retirement. About 18% of 401(k) plan participants had loans outstanding in this year’s first quarter, according to the Investment Company Institute, the mutual-fund trade group. Some 1.7% of participants took a hardship withdrawal last year, a percentage that has held steady for several years.
Here are five questions to ask yourself before deciding whether—or how—to start raiding your 401(k).
via Five Questions to Ask Before Stealing From Your 401(k) – WSJ – WSJ.