What is the penalty for liquidating 401k

Many people are tempted to take money out of their work retirement plan when they hit a financial rough patch.

Before you pull the trigger and take an early withdrawal from a 401(k) or a 403(b), you need to fully understand the rules and penalties.

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In this article I'll cover when you can take a withdrawal and why you should never take money out of a retirement plan if you can help it.

First, let me back up and briefly explain 401(k) and 403(b) retirement plans.

Even after the tax penalties, my calculations show me that I’ll get about $21,000 out of one of them, leaving me with a little under $4,000 in credit card debt which I could eliminate by the end of the summer. Given that she still has $30K in a 401(k) indicates that she’s putting a pretty heavy amount into them each month.

While this move will obviously hinder retirement, it isn’t a complete disaster.I’m paying this debt down, but it’s at a snail’s pace – I have played some balance transfer games, but I still keep getting hit with finance charges.Even if I never charge another cent, I calculate that I won’t be able to pay off this tremendous debt until 2011.I have my financial life in order now and I’m spending much less than I bring in each month.I am considering using one of the 401(k)s to pay off debt.If you're counting on using 401(k) funds to pay for your next vacation or to buy a car, I hate to disappoint you, but it isn't allowed.

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