Dear Liz: You responded to the question “Should I take $50,000 from my 401(k) to pay off the debt?” with a resounding no. However, part of the rationale was how much the money could grow if it were left alone. That makes sense for a young person, but how would you answer the same question for someone retired at age 66?
Answer: At that age, you wouldn’t face tax penalties for early withdrawal and you’re probably giving up less in future gains than someone who is younger.
But dipping into a 401(k) to pay unsecured debts may still be a bad move if there is any chance you’ll wind up in Bankruptcy Court, because retirement funds are protected from creditors. It’s also unwise if you would be withdrawing a large part of your nest egg, because this money has to last you the rest of your life.
A visit with a fee-only planner can help you decide whether using your retirement money this way makes sense. You can get referrals from www.garrettplanningnetwork.com or www.napfa.org.
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