Is There Any Way To Withdraw 401k To Pay Off Debt?

My wife was laid off from her job. We have been paying bills with credit cards, thinking she will find a job soon. We are not behind yet, but would like to do something before that. Trying to avoid bad credit or bankruptcy.

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asked 3 years ago

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It is possible to borrow against your 401(k) you can also withdraw money for certain qualified emergencies but unless it is a Roth 401(k) then you will also have to pay tax at the time of the withdrawal.

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Sina516

answered 3 years ago

You will need to pay federal income tax on the amount withdrawn plus an early withdrawal penalty. (For me, this amounted to 20% for the former and 10% for the penalty, a total of 30% of the amount withdrawn.) Your 401(k) advisor can walk you through the process. It stings to lose 30%, but in some cases, it's clearly the best option. You should also begin communicating with your credit card companies to see if you can negotiate a lower rate or better terms (lower payment). Good luck to you and your wife.