By Douglas Jacobs, California Bankruptcy attorney, posted in Bankruptcy Basics
Don’t take money out of your retirement account to ease a temporary economic crunch.
Difficult times come and go; and sometimes they seem insurmountable. When that happens, it might appear wise to tap into the 401k or the IRA and borrow or take some of the funds. Don’t do it!
I see bankruptcy clients every day who have used their 401k or their IRA to cover bills. They come to see me after they have reduced or spent all of their retirement! It’s too bad they didn’t see a bankruptcy attorney or competent financial adviser before that money was gone.
You should also remember that any money you withdraw from a retirement account gets taxed now. And there’s a 10% penalty for early withdrawals from an IRA. Those taxes won’t go away in bankruptcy. Not only will you lose an exempt asset you could have kept, but you will incur a new debt too.
So, don’t deplete your retirement. Leave it for when you really need it. See a competent bankruptcy attorney in your state before you make the decision.