I have just been laid off. Can I use my 401(k) for living expenses now and report it as income next year?

Personal Finance, 401(k)
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3 weeks ago
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Hello,

The natural response to an unexpected event, such as being laid off, is to look for the place that holds your money, namely the 401(k) plan. That could be a possibility if that is your last resort, but I must caution you on the consequences of such an action: You could be facing not only the ordinary income tax from the amount you withdraw, but also an additional 10% tax penalty if you’re under 59 ½.  Furthermore, if you start to tap your retirement fund now, where do you draw the money when you do retire in the future?

Instead of withdrawing from the 401(k), is it possible you can borrow a loan from the 401(k)? In doing so, you may be penalized for an interest, but you’re paying yourself that interest without jeopardizing your retirement fund. Next, if you have built an equity, could you tap your home equity line of credit for such emergency needs? Look all possibilities first. Best!

October 2006
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