Should I Use My Retirement Fund to Cover Urgent Financial Needs?
November 21, 2019
According to a recent survey, more and more Americans today, especially those in the working class, are turning to their retirement funds in order to finance an urgent need. These individuals either withdraw cash from their IRA, 401(k) or 403(b) funds, or borrow money against qualified retirement accounts.
Now, are you tempted to do the same? If your answer to this question is yes, then we advise you to pay close attention to the remainder of this article. Below we have listed three questions that you need to carefully consider before you decide to tap on your retirement fund to cover an urgent financial need.
Questions You Need to Consider
1. How much cash will I really get?
Always remember that you won’t really get the exact amount that you intend to withdraw from your retirement fund. After all, early withdrawals are charged with taxes and a 10% penalty. For instance, a $10,000 withdrawn from your IRA will only give you a sum of money that could range from $5,500 to $7,000, depending on your current tax rate. This means that you won’t be able to receive the lump sum that you wish to use for covering an urgent financial need.
So, before you decide to tap on your retirement fund, see to it that you set up a meeting first with a tax professional, like a certified public accountant or a tax lawyer. Through the assistance of any of these professionals, for sure you will be able to understand the true cost involved in withdrawing cash from your retirement fund. And this information will help you decide whether or not to push through with your plan. Learn more!
2. Are the rates affordable?
If you decide to borrow against a qualified retirement account, then you will be asked to pay back the balance, plus interest, in a span of five years. However, before you sign up for this program, make sure that you consider first the rate of interest that will be charged on your credit account, as well as your personal budget. Ask yourself the following: Can I afford this rate? Do I have sufficient disposable income that I can use to pay for my monthly installments? By considering these important questions, you can reach a sound decision whether or not to accept the terms and rate of your credit program.
3. What are my alternatives?
You also need to consider other options that can help you finance an urgent need. For example, you may decide to apply for a multipurpose loan, charge the expense to one of your credit cards, or sell one of your properties to generate the funds you need. Or, better yet, visit a credit counselor who can open your eyes to alternative ways on how you can obtain easy money, aside from tapping on your retirement fund.
We sincerely hope that this article helped you gain insights on what you need to carefully consider before you decide to withdraw cash from your retirement fund or borrow money against your qualified retirement account. Check out this site: https://www.businessnewsdaily.com/7509-best-payroll-services.html