Hardship Withdrawal: How To Know When To Pull From Retirement Account

Everyone has heard the expression that sometimes life just gets in the way of your plans. More specifically, life tends to come to you with unexpected expenses and thus throw the proverbial wrench into our savings plan.

So when is it acceptable to delve into money you have saved, particularly the hotly contested topic that is retirement accounts and cracking them open to being able to account for expenses you don’t have the immediate funds for, whether it’s a home repair, a spike in medical bills or car issues.

The 401K withdrawal, for instance, is all too common for those who only can’t find any other ways to pay for the issues mentioned above that catch you off guard. The truth is using your retirement account can sometimes be a last resort, and that’s all it ever should be.

No one should even get in the habit of using retirement funds as part of their income, relying on it to the point that it becomes a habitual occurrence.

The fact remains is that you should be budgeting your income accordingly to be able to save money from one paycheck to the next, thus amassing that nest egg for just such events that may happen.

But if you aren’t quite there yet, the retirement fund can be used.

In some cases, borrowing from your 401K is more accepted, in comparison to those individuals who decide to take from their retirement and use that for vacation expenses or to go on a shopping spree. Using your 401K is an emergency only proposition, aside from a few exceptions.

If you’re in the market for a house, using your 401K for your down payment often isn’t quite as frowned upon, much the same way it wouldn’t be if you used that same retirement account to pay a medical expense. You might want to consider a hardship withdrawal if that is the case, rather than a traditional 401K loan. That said, the loan forces you to pay that money back to the account, rather than the alternative (hardship), which essentially lets you off the hook as to not have to repay the loan.

Ultimately, if you borrow from your 401K, you want to put that money back at some point.

The skinny on your retirement account is pretty simple: don’t touch it, unless of course something of great importance or need rears its head, and you have no other recourse by to regroup and use money that you’d rather not.