Can I Use Retirement Savings to Pay Off Debt?
Audio version available here:
Length: approx. 1 min. 20 sec.
Not long ago, we reported on the staggering $130 billion paid by Americans in credit card fees and interest. Now, credit card balances have reached a record $1.08 trillion. Add on the rising cost of living and student loan payments, and many Americans are turning to their retirement accounts for relief.
Bank of America reported an increase of 27% from the first quarter of the year in 401(k) hardship distributions, which are taxed as income. In order to be considered a hardship distribution, the withdrawal must be due to “immediate and heavy financial need”, which confirms the struggles Americans are facing despite high GDP and low unemployment. However, pulling funds from your retirement savings is not a good idea. It may provide immediate relief to an urgent financial situation, but it will ultimately affect your future. With the money not in a growth account like a 401(k) or IRA, you will not have as much money when you need it in retirement.
We understand that the fear of incurring more debt can make you feel desperate for solutions. But it is important to think through your options and gauge if they will set you up for failure in the future. Consulting with a financial advisor is the best way to make sure you will be able to get out of debt while maintaining your future savings. For the right guidance, reach out to our experts at XQ CPA. We would love to help you.
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