91. Why You Should Not Make an Early 401(k) Withdrawal to Pay Off Debt

When you have debt, especially a large amount, it can be tempting to use your retirement funds to pay off your unsecured creditors. However, this is a bad strategy. Did you know that creditors cannot touch your retirement funds?

Can Your Retirement Be Garnished?

Unsecured creditors cannot take your Federal benefit payments. In fact, when no distributions are taken and funds are held in your 401(k), that money cannot be touched by unsecured creditors. This is not the case for judgments relating to federal income taxes. So, you should consult an attorney for more information if you have unpaid tax debt.

Consequences To An Early Withdrawal

When you make an early withdrawal from your 401(k) account, you run the risk of paying additional taxes and penalties. Also, you are taking away from your retirement money. This may leave you without a secure financial future. Remember, each time you contribute to your 401(k), you are receiving tax benefits. So, by removing money early, you also remove money from increasing in an account with tax-advantages.

So, What Other Options Are Available?

Finding yourself in financial trouble is stressful, but using your retirement to reduce or eliminate that debt has big consequences for you and your future. You should weigh your options and speak with a qualified bankruptcy attorney. Bankruptcy is a more viable option that will protect your retirement and drastically reduce or entirely eliminate your mounting debt.

Contact Our Office Today

If you are considering filing for bankruptcy or just want more information, we recommend that you call and schedule an appointment today.

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Daniela Romero

Daniela Romero has been practicing law in the Los Angeles area since 1998. Ms. Romero has practiced in the areas of civil litigation, family law and bankruptcy law. She was also the staff attorney for the Los Angeles County Bar Association’s Domestic Violence Project. MORE

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