Some families who experience debt problems dip into retirement savings as a temporary solution. This can have high costs both now and later.
In many cases, there is a better way to deal with debt problems. One is to consider bankruptcy, which allows you to get rid of debt while protecting retirement savings.
The short-term cost of withdrawing money from retirement accounts
When you withdraw money from a 401(k) or IRA account, you have to pay regular income taxes on that money, plus a 10 percent excise tax. This could lead to further financial stress when it comes time to pay your taxes.
The long-term cost of withdrawing money from retirement accounts
The long-term cost of dipping into retirement savings is that you will lose money needed for your retirement.
Dipping into a retirement savings account may not solve the underlying problem of having too much debt. You could end up making repeated withdrawals, just to keep up with bills. The money you planned for your retirement could be exhausted paying credit card, medical or other debt.
Bankruptcy as a solution
For many people with too much debt, bankruptcy is a better solution. When you file bankruptcy, you can discharge 100 percent of many types of debt, including credit card debt, medical debt and payday loans. When you file bankruptcy, you can keep your retirement savings, including:
- Up to $1,171,650 in 401(k) and IRA accounts
- Pension plans
Filing bankruptcy allows you to solve debt problems without mortgaging your retirement. Sadly, many people turn to bankruptcy only after they have exhausted their retirement savings.
An experienced bankruptcy attorney can let you know if bankruptcy is a solution for your debt problems.