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sassyjt20

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should i take money out of my 401k to pay off debt

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It depends...

Are you taking an "inservice loan" - which means you're working and your employer's plan allows you to take a loan - tax free - and you pay back the loan through your paycheck with interest.... OR... Are you taking a straight withdrawal?

Taking a straigh withdrawal will cause a taxable event in which you will pay taxes at your ordinary income rate + a 10% penalty if you are under the age of 55...... NOT recommended unless you absolutley need the money.

If you are taking an inservice loan.... I would weigh out the pros and cons and ask yourself - do you really need the money?  In most cases, you will pay a lower interest rate on 401K loans than you will on personal loans and on credit cards.  The downside to this is: 1. When you take the loan - it is no longer invested - meaning that you could potentially lose out on market gains.  As of 8/18/2013 the market is doing great YTD - earning returns higher than the interest you may pay on loans or credit cards. 2. If you quit or are fired from your employer, the loan is due immediately.  If you do not pay the loan back, it is considered a withdrawal and is a taxable event.

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