If you have student loan debt, you know what it feels like to be desperate to pay it off. Millions of individuals in the U.S. carry student loan debt that they took out to pay for their own education or their child’s education. As a result, many individuals seek ways to repay their student loan debt early.
A healthy 401k account might hold enough money for you to pay your debts in full and move on with your life. However, the question remains – is it worth it? Here, we’re going to explore the implications of withdrawing from your retirement account and when it makes sense to use your 401k funds for student loan debt.
Am I Eligible To Withdraw From My Retirement Account?
Before you can even begin to think about withdrawing money from your retirement account, you must determine your eligibility. Unless you’re completely closing your retirement account, the only money you’re able to withdraw is elective-deferral contributions. In other words, you can only withdraw money you put in your retirement account yourself. Money from your employer is not eligible. There are some exceptions to this rule including:
- Hardship due to excessive medical debt
- Foreclosure or eviction prevention
- Layoff or loss of job
Before you decide to withdraw money from your retirement account you should discuss the implications with your financial advisor.
What Are the Penalties for Withdrawing From My 401k?
Unfortunately, withdrawing funds from your 401k isn’t free. The biggest penalty for retirement fund withdrawal is the taxes. Any person who takes money from their 401k must pay income tax on the money plus a 10% tax penalty. It’s also important to make sure that taking money from your retirement account will not put you in a higher tax bracket. A large withdrawal could cause you to pay a higher tax rate on the top end of your income.
There are times when cashing out your retirement to pay off student loans makes sense. For example, if you’re unable to continue to save money for retirement and are also unable to make your student loan payments, it might be a good idea to pay off your student loans and start fresh. In addition, if you’re taking out an amount you’re certain you can replenish, withdrawal might be worth considering.
What are Other Options for Paying Off Student Loans?
Any time you make a major financial decision, you should always consider all your options. Luckily, there are alternative options for paying off student loans that don’t involve giving up your life goals. For example, federal student loan programs offer ways to obtain student loan forgiveness. Other options include:
- Student loan consolidation
- Debt settlement
- or balance transfers.
Whatever option you determine is best for you and your circumstances is great as long as you’ve accepted and considered the advice of trusted financial counsel along the way.
Experienced Debt Settlement Lawyers Who Can Help You
If you’re ready to start paying off your student loans but don’t know where to start, talk to the attorneys at McCarthy Law PLC today. We have experienced debt settlement lawyers who are passionate about helping people escape the burden of student loans. Our goal is to help you erase your debt, restore your credit, and get back to your life as quickly as possible.
The team at McCarthy Law PLC is knowledgeable regarding multiple repayment options including student loan consolidation and debt settlement. To schedule a free consultation to discuss your options, call our office at 855-976-5777 or fill out our online contact form today.