“Who knows if I will live until retirement? I have $ 10,000 in credit card debt and $ 4.5,000 in student loans. Should I use my 401 (k) $ 24K?


Dear Quentin,

I’m 41, the father of two adorable teenage daughters and married to my second wife for just over a year. I have about $ 10,000 in credit card debt and I still have about $ 4,500 to pay off my student loan. Our combined income is approximately $ 100,000 per year.

I probably have a small amount of money invested in a 401 (k), currently at around $ 24,000. I still think things would be A LOT more comfortable if I paid off my debt with part of this retirement fund.

I know there are penalties and taxes, but the thought of this money just sitting there, doing nothing at all for me really itches. I still have at least 25 years of work ahead of me. I know it’s a really dark thing to recognize, but who knows if I’ll live through retirement? Who knows how much my quality of life could improve by getting rid of this debt?

It sounds like a solution to a problem, but it seems like everyone is universally thinking, “DON’T TOUCH YOUR RETIREMENT! “

Another dark side is that I have an unhealthy grandmother in the late 90s. She will leave me some money, and my 73-year-old parents also have a fully paid house and an inheritance that I have. was bequeathed which will inevitably come at some point before my retirement.

Make no mistake, I’m not betting on these fatalities, but I’m just painting a picture of the circumstances under which I believe I would be able to “pay off” with these fatalities.

What is the downside to this idea? The future self may not need this money as much as the current self thinks.

Thanks a lot.

401 (k) I wonder

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Dear 401 (k) You are wondering,

If you took that money out of your 401 (k), your future self would look back and say, “Thanks for nothing, mate.”

You need to look at how you got into $ 10,000 credit card debt, ask yourself some tough questions, and work out a plan with your second wife – congratulations, by the way – to get out of this. You should both do this together as it is holding you both back and hopefully you can repay your wife at a later date.

The interest rate is a killer. I have written about people who have had $ 89,000 on 11 credit cards. They took on extra jobs, ate porridge, and cut their cables. They did all they could to cut spending and come up with a plan to aggressively pay down their debt. But stealing your 401 (k) to pay off your credit card isn’t the answer.

If you were to withdraw that $ 24,000 early from your 401 (k) before age 59 and a half, you would be charged income tax on the withdrawal in addition to a 10% early withdrawal penalty. The amount you withdraw will be added to your 2021 tax return. You create more problems so take the “easy” solution.

But as Bryson Roof, CFP, investment advisor at Fort Pitt Capital Group in Pittsburgh, told MarketWatch: “The biggest cost associated with a 401 (k) distribution isn’t taxes, it’s the cost of opportunity to miss the growth of these funds. it could have worsened over 20, 30 or 40 years.

We live in the midst of a global pandemic when people take time out and you have a job. You don’t need to take a lavish vacation or eat at fancy restaurants. We can all take this advice. You are not the only one who is tempted to come out of an emotional and public health crisis. We are human.

But the satisfaction you get from breaking the back of that $ 10,000 credit card debt will be worth it.

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