Why Tapping Your Retirement Plan May Not Be Your Best Bet for Extra Money
Here's why withdrawing from or borrowing against your retirement plan may not be your best option when you need extra cash, along with some other options that may be a better choice for you.
You may need extra cash for a down payment on your home, a special purchase, or you may be facing an emergency, such as a job loss, divorce, or illness. You may also be thinking of taking money out of or taking a loan against your retirement plan funds to get the extra money you need for these things. Before you tap your retirement plan, it's important to know that doing so may not be your best bet for extra money.
Raiding Retirement Funds: Not the Best Option
Here are some reasons why tapping into your retirement plan may not be the best option for you, and may even make your financial situation worse:
· If you tap your retirement account before you are 59 ½ years old, you will have to pay a 10 percent penalty on top of any taxes on the amount you take out.
· Every dollar you withdraw could cost you as much as $5 to $25 in forfeited returns. You may have to change your retirement plans if you don't have enough saved.
· If you take out a loan against your retirement plan and if you lose or change jobs, the amount you borrowed may be due immediately all at once, or you will have to pay penalties and taxes.
· You can borrow money for almost anything - except your retirement.
Alternatives to Tapping Your Retirement Account
Depending on your financial situation, these options for extra cash may be a better deal:
Personal Loans:
Personal loans are guaranteed by your promise to repay it. Personal loans are also called unsecured loans or unsecured personal loans because you don't need any collateral, like your home or car, to guarantee the loan. Personal loans may be able to help you consolidate your debt or allow you to make a special purchase at lower interest rates than credit cards.
For more information about personal loans, visit our Personal Loans page.
Debt Consolidation Loans:
Debt consolidation may help you save money by lowering your interest rates and the amount you owe every month to free up extra cash. Debt consolidation may also help you organize and streamline your finances with just one payment.
For more information about debt consolidation, visit our Debt Consolidation page.
Home Equity Loans/Home Equity Lines of Credit:
If you have enough equity in your new or current home, you may be able to use a home equity loan or line of credit for extra cash. A home equity loan or line of credit may have a lower interest rate than other ways of borrowing money, plus you may be able to deduct the interest from your taxes.
Visit our Home Equity page to find out more about our home equity loans and lines of credit.
Other Alternatives
When you need extra money, there are better places to get it than your retirement plan. Ask a financial or legal expert to help you find out about these alternatives and which ones are best for your situation. Remember to avoid agreeing to anything that seems too good to be true or too easy to do.
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These are general recommendations not applicable to all financial situations. Every financial situation is unique. Further, the suggestions and recommendations contained within the content provided are not an assurance of any future result. Be sure to discuss your specific financial circumstances with a legal or financial expert. Contact us for more information.
