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I know most people would say to not withdraw money or take a loan on a 401K account, but wouldn't it be better than going to settlement and ruining your credit rating? Part of me really wants to do this so we can avoid major negative marks on our record. Money is tight right now but in five months, our cars are paid for and my husband is gaining additional work. These things would help with overall cash flow each month. So if we can make it through six months, we'll be doing better. Does that make sense?

If you can be diligent enough to pay it back ASAP, I don't see a problem with it. HOWEVER, I would recommend taking a loan against the 401k to avoid a tax situation. Keep in mind, if you borrow against your 401k and leave your job before the loan is paid back, you will have penalties and tax to pay on it.

How much do you think you'll want to borrow?

BTW - I'm a tax accountant...I kinda know this stuff! ;)

Sub: #1 posted on Tue, 07/29/2008 - 03:05

desperatelyseekingsanity desperatelyseekingsanity

(Posts: 1129 | Credits: 58.41)

I myself would rather trash my credit than touch my retirement. The way our nation debt is we all know Social Security will go broke so your 401k will be what you will use to live off of. Plus you will be penalized heavily by the IRS. Don`t do it. I don`t know a single financial adviser who would ever suggest touching your 401k.

Sub: #2 posted on Tue, 07/29/2008 - 03:09

mobile0311 mobile0311
(Posts: 1817 | Credits: 104.57)

Any withdrawals are automatically set up for monthly repaymeht so paying it wouldn't be a problem. However, it does worry me about not leaving the job. My husband may deploy next summer which would mean leaving his civilian job which has the 401K. Is there a way we could set up repayment through our checking account in the event that he does have to leave?

Sub: #3 posted on Tue, 07/29/2008 - 03:14


I believe if he is deployed, he may be exempt. Not sure on that - you might want to talk to the HR dept. Technically, he didn't leave the company, just went off to military, so they must hold his job.

How much money are you talking about and is it something you can pay back within a year or two?

Sounds like you are young enough that if you did have to borrow from your 401k you would still be in fine shape if you pay it back SOON so you get the benefit of compounded interest.

Sub: #4 posted on Tue, 07/29/2008 - 03:30

desperatelyseekingsanity desperatelyseekingsanity

(Posts: 1129 | Credits: 58.41)

If you'd rather not touch the 401K, another possibility is to cut out some of your non-necessities until everything evens out a bit. Not touching your retirement is smart, especially when REALLY you are not in an emergency situation with your credit.

You could always not take that vacation this year. Put a budget on your Christmas spending. Cancel your landscaper, reduce your super duper internet/cable/telephone/cell phone etc packages a bit. Turn up the AC termostadt a few degrees. Don't buy the flatscreen blueray TV/new IPOD/new car. There are a ton of things that you could NOT do which will help your finances but NOT spending "unnecessary" money on "stuff".

Good luck, and thank your husband for his service to our country!

Sub: #5 posted on Tue, 07/29/2008 - 22:12

smo65d11 smo65d11

(Posts: 1468 | Credits: 133.12)

In my opinion the negatives that pop up when borrowing from a retirement account outweigh the positives by a ton. I would never do it. I think you are better off to figure out the symptoms of your problem and correct that over a longer period of time than to erode your retirement savings. If you already own a home on a decent fixed rate then your short term credit score isn't too important anyway. You could spend the next few years working on it and clean it up. After that then you could work on buying your next home. All the rest of the credit offers are trash and unnecessary and you are better off to learn to live without those anyways.

Sub: #6 posted on Tue, 07/29/2008 - 22:23

Moderators Cum Industry Expert
(Posts: 1078 | Credits: 137.97)

I agree that overall, taking money out of a retirement account may not be the BEST course of action, however, if you are having difficulty making ends meet after you have scaled back non-necessities, then to help you in the short term, sometimes it IS necessary.

Instead of borrowing, would forgoing contributions to your 401k help you for 6 months? (Still not the best option, but I hope this answers your question.)

Sub: #7 posted on Wed, 07/30/2008 - 01:28

desperatelyseekingsanity desperatelyseekingsanity

(Posts: 1129 | Credits: 58.41)

Last year when the IRS levied my bank account I was forced to take a loan against my 401k to pay off my tax debt and get my accounts freed up. In essence it was a loan to myself and the interest rate is only 5%. It's $30 out of my check every week but fortunately it has not had as great an impact as I thought it would.

Sub: #8 posted on Wed, 07/30/2008 - 01:32

Moderators Cum Industry Expert
(Posts: 4665 | Credits: 308.23)

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