While it may be tempting to use a 401(k) to pay off credit card debt, this decision carries significant consequences, including a 10% penalty for early withdrawals. The IRS enforces this penalty because 401(k) funds are intended for retirement, not debt repayment. Early withdrawals can not only lead to a loss of savings but also incur taxable income, ultimately jeopardizing your long-term financial security. Exploring alternative debt repayment options is advisable to avoid these pitfalls.
If you take a withdrawal from a 401(k) before reaching the age of 59 and 1/2, you risk a 10% penalty for removing funds early.
Tapping a 401(k) to pay credit card debt may seem appealing, but it can lead to penalties and jeopardize your retirement savings.
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