Borrowing off your 401K can be a lifeline

[Admin]

Traditionally, we are told never to borrow off a Tax Sheltered Annuity (TSA, 401K, 403 B) and certainly never cash one in. But when you are out of work and the funds are running out . . . that 401K may be the most valuable lifeline available.

Here is the situation many people are facing.

• With no job, even if someone could take out a HELOC or ELC, they will not be approved. So unless that is already set up, forget trying to tap into your home's equity as a stop gap measure until you are employed.

• We are told there are penalties if you dip into your 401K. TRUE. But that occurs if you literally CASH OUT your TSA. In that case, you will pay a penalty and the money will be recognized as INCOME, so you will pay taxes on it. However, if you BORROW off that TSA and pay it back . . . you avoid those penalties. Every program has variances; talk to your plan administrator to find out details about any additional costs to borrow off your 401K.

Your strategy should be to take out the maximum and put the funds in a money market account, leaving part in your checking account for easy access. If you get a job and there are funds left, simply make a lump sum payment back into your fund.

When times are tough financially, we have to get bold with our decisions. The idea is to take care of your situation NOW. Yes, we all agree, depleting our retirement funds is something we should not do. However, preserving your assets, such as being able to pay that mortgage every month, is the most important issue NOW.

Borrowing off your 401K can give you options until you land that fulltime job. Just remind yourself to be grateful you even have that fund to tap into, instead of feeling stressed about having to access those funds.