Withdraw from 401k to pay off the credit cards
Q: I am $30,000 in credit card debt with $52,000 in my 401k and currently unemployed. I need to get out of debt. The job market in Michigan right now is very bad, and paying off the credit cards could really help. Can I take money from my 401k.
A: The best way is to call your 401k management company, whatever it is - Fidelity, Schwab, etc., and see if your plan is eligible for withdrawal. You can also check with your former employer human resources department. Few 401(k) plans allow you take the money whenever your want, for whatever reason, others only if you meet certain financial hardships, as defined by the government.
There are also possible 10% early withdrawal penalty if you are under 59 1/2, and 20% mandatory federal income tax withholding. Those may or may not apply. Do check with the accountant.
If you can't withdraw money from your 401(k), consider opening IRA account and rolling 401(k) into it. I think it is much easier to withdraw the money from IRA then 401(k), if not in terms of penalty and taxes, then in procedural terms. But please verify this with whoever you can open it. Local banks, Vanguard are good IRA choices.
Here are few more sources -
401(k) withdrawal - general overview,
401(k) withdrawal - more details
borrowing from 401(k)
more details on 401(k) hardships
Sat Apr 7, 2007 06:04PM | Copyright: www.bad-credit-advisor.com | More in Credit Card Debt | Comments (0)
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