Questions Cheyenne Folks Should Ask Before Taking Funds Out Of A 401(k)

No doubt, we have all had to dip into our savings accounts for one reason or another. Here are some questions we should ask ourselves before we take out of our 401(k) Plans.  Today on the Top 5 at 7:45, I'll highlight some of the things to consider before we take a withdrawal out of our savings account as inspired by The Wall Street Journal.

1. What Is The Tax Hit? - A loan isn't taxable and the interest is low compared with other borrowing entities, however usually one and sometimes two percentage points over the prime rate which is 3.25% today.
2. Can A Tax Penalty Be Avoided If A Withdrawal Is Chosen? - There is no tax penalty if you are over 55 years of age and older and have left your employer who sponsored the plan, whether voluntarily or otherwise. If you become disabled, you'll not access a penalty or if the amount withdrawn is to make a payment on an non-reimbursed medical expense.
3. Do I Feel Secure In My Job? - When you take a loan from your 401(k), you should have faith that you're not going to lose your job. If you are dismissed from your job be either because of lay off or because you got another job elsewhere, the loan balance typically has to be paid back within 60 days or else you may owe income tax and 10% of the amount drawn if you're younger than 59 1/2 years old.
4. Will I Care If My Account Is Slowed Down For 6 Months Or More Because Of A Withdrawal? - Typically, you will be restricted from making any contributions for 6 months after you withdraw monies for a hardship, which cuts your retirement assets.
5. Is There An IRA Alternative For Me? - For those of you with "old" 401(k)'s from former employers, you might consider rolling them over into an IRA (Individual Retirement Account). The reason for this is because the IRA tends to have looser rules for early withdrawals. You might be subject to the 10% tax penalty if you withdraw to pay for college tuition for you, your spouse or your children.

Please keep in mind that we are not financial experts and the tips given here are merely to get the reader to think twice before taking a withdrawal from any savings account. Please check with a professional financial adviser to gain sound advise on what you should do in your situation and on any laws that may govern your specific savings portfolio.

The Top 5 at 7:45 airs weekdays with me, Gary Freeman and sponsored by First Education Federal Credit Union.