WAXHAW, NC – If you are facing a financial need, you may think about tapping into your 401(k). After all, it’s your money – why not use it?
For one thing, you’d be reducing the amount you have available when you retire. Also, withdrawals taken before you’re 59½ may be taxable and are generally subject to a 10% penalty.
Therefore, you may first want to explore some other options. For starters, you could look for ways to reduce spending. And if you’ve built an emergency fund containing a few months’ worths of living expenses, now might be the time to use it.
But if you encounter a financial crunch and you don’t have an emergency fund, you could look to your taxable investment accounts or a 401(k) loan. You might also consider other types of loans before withdrawing from your 401(k) or using credit cards extensively.
However, each of these options will have trade-offs, so discuss them with a financial professional before making any decisions.
In any case, do what you can to explore all your options before making a quick decision about your 401(k).