Dipping into a 401(k) to alleviate immediate financial issues, such as rising rent and debt, can severely jeopardize retirement savings, according to financial expert Dave Ramsey. A caller, despite having a modest 401(k) balance, pondered cashing out to pay off debts and buy a home. Ramsey strongly advised against this, emphasizing the risks of taxes and penalties. Instead, he suggested other strategies like budgeting or seeking cheaper housing to maintain financial stability without sacrificing retirement funds. This approach is key to securing long-term financial health while addressing short-term challenges.
When faced with rising rent and mounting debt, the temptation to dip into a 401(k) to buy a home can be strong, but personal finance expert Dave Ramsey warns against it.
A caller considered cashing out her retirement savings to pay off debts and fund a home purchase, but Ramsey's response was, 'That would be stupid.'
Using a 401(k) to pay a mortgage or debts is a risky move, as it incurs steep taxes and penalties, undermining long-term financial security.
Exploring alternatives like budgeting or cheaper housing can preserve your 401(k) for retirement, ensuring better financial stability.
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