Thinking about using your 401(k) for quick cash? Think twice before you cash out or borrow. The money in your workplace retirement plan should be your last resort for paying off various types of debt.
You can take money out of these accounts for a "hardship" situation, such as paying for tuition or medical costs.
But hardship withdrawals can come at a high cost:
- Once you receive the withdrawal, you'll owe income tax on any pretax money you withdraw, including your own contributions, your employer's contributions and your investment earnings.
- You will likely have to pay a 10% federal penalty for a premature distribution as well as a possible state penalty because you are under age 591/2.
- You may be forced to save more in the future just to catch up.