While it may be tempting to withdraw some money from your 401K when you need to get some emergency money, everyone knows that it is a bad idea to withdraw money meant for your retirement. Today, we provide you with some of the tips you can use to avoid withdrawing from your 401K, so you can enjoy a relaxing and secure retirement!
Have an Alternative Form of Savings
To ensure you do not touch the important stash in your 401K, it is always recommended to have some savings. Unfortunately, most people believe that only those in debt must save money. Naturally, this is far from the truth, because anyone could be hit with a financial emergency.
Having some savings in a savings account could have some additional benefits. If you do not use the savings, then you have a little extra cash upon your retirement!
Get a Bank Loan for Urgent Expenses
Americans who do not have savings could avoid touching their 401K by getting a bank loan instead. While borrowing money is far from ideal, it does provide a viable alternative if you are facing unexpected medical bills, home repairs, or other things that may cost a considerable amount of money. Afterwards, you can repay the loan and still have your 401K intact.
Please note that there are different types of loans. Some may prove more beneficial to you when you are dealing with emergency expenses. Banks could provide you with a special loan for medical expenses, but also home repairs, car repairs, and any other emergency expenses you might be encountering. So, be sure to talk to the bank’s representative about this before applying for a loan.
Borrow from Friends and Family
Most people do not like to ask their friends and family members for money, but if your loan is refused, then this will be your next option before you consider withdrawing from your 401K. Most loans from friends and family don’t come with any interest either, so it is better than paying the 10% early withdrawal fee on a 401K withdrawal.
When Could I Use My 401K?
There are some exceptions where employees are forced to touch their 401K. For example, you could have a poor credit history and be denied a bank loan. If this is the case for you, then the 401K might be the last resort.
We do recommend speaking to your employer before you touch your 401K. Some companies allow you to take out a 401K loan. The 401K loan is not the same as withdrawing from your 401K directly. You might not have to pay the 10% early withdrawal fee.
As you may have deducted from this article, it is always best to consider all other options before withdrawing from your 401K. Of course, there can be some emergencies where you have no other options, unless you did the smart thing and saved some money in a savings account beforehand.
At the end of the day, being prepared is the smart thing to do when it comes to your retirement. Never underestimate how much money you will need for your retirement and keep that 401K intact if possible!