As unemployment continues to rise and threaten the survivability of many families, many consumers are making the very difficult decision of how to get by during a job loss.
Budgets are becoming tighter than ever and families are forced to start "robbing Peter to pay Paul".
The means they are using to do this often do not make financial sense.
One such method is by liquidating their retirement funds.
But is touching your 401k the right thing to do? Here are some considerations to make when deciding to liquidate your 401k: Tougher Retirement When you take your money now, you will have no more money in the future.
Unless you have a plan to replace money spent, you are looking at pushing back your retirement age by years.
If, in the future, you get sick and can no longer work past a certain age, you will likely have nothing to fall back on.
Starting Over When you withdraw your 401k, you have to start over from the bottom and rebuild your fund.
This is not an easy thing to do when you get older.
Think about how hard it was to build the fund from when you were younger and how much harder it will be now that a considerable amount of time has passed.
Unemployment is Deferred If the government discovers you made the withdrawal, you will have to wait to get your unemployment benefits.
Your 401k withdrawal is considered to be income and until that money runs out you will be considered ineligible for those benefits.
If your are discovered to having withdrawn your retirement account funds while receiving unemployment, you may be required to pay back the benefits received.
Taxes and Penalties Since your retirement funds are considered as income, you will be subjected to taxes and penalty payments unless you are 59 ½ years old or older.
A 10% penalty will be incurred for taking out your funds before retirement age.
If you choose to withdraw your funds, be sure to calculate and pay for the taxes due or you can be penalized for back taxes owed.
Not a good situation to be in if you are already having money problems.
Overall, it seems that touching your retirement funds today as a way to survive make little financial sense and you likely can not afford to touch the money - now or in the future.
If you have seemingly no where else to turn for financial help, consult with a counselor who may be able to help you work out your financial issues in a way that keeps your saved money saved while you still work to get out of debt.