Can I withdraw funds from my 401k to payoff debts without penalty?

I'm a 52 year old with $40K in credit card debt. I would like to withdraw from my account without the 10% penalty. My 401k amount is only 2 times my debt. Is this possible or a wise decision? My credit card interest is 15% and my 401k earnings are around 8-10%.

Debt, 401(k)
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August 2017


The credit card debt is a killer.  Mathematically, it may make sense to borrow (not withdraw) from your 401k to pay off your credit card debt.  Since you can borrow the lesser of the $50k or 50% of your account balance, the most you can borrow may be $40k.  

Here are other considerations: 1) Layoff.  When you are laid off, the 401k loan needs to be paid back immediately. Otherwise, it will be considered as a premature withdrawal if without an exception. When that happens, you will pay a 10% early withdrawal tax penalty in addition to the regular income tax. 2) Retirement: 401k is set up for retirement only, thus it’s not supposed to use for any other purposes but retirement.  Especially considering there’s no guaranteed retirement income (except Social Security benefits) for you in the future, it’s ideally to fund 401k while you’re still working. 

A better recommendation may be for you to find a trust worthy CFP® practitioner, who can help you build a budget and emergency fund so you won’t run into the “rob Peter to pay Paul” again. Best!


August 2017
August 2017
August 2017