Call Now!
Call Us 414-326-9231 608-260-7133 Text Us 414-326-4709

Avoid using retirement accounts to pay off debt

Residents in Wisconsin who have large amounts of debt may consider taking money out of their 401(k) retirement accounts to pay off their creditors. While this may seem like a quick and easy way to eliminate credit card debt, there are a number of downsides to taking money out of a retirement account. Additionally, if someone does not deal with the behavior that led them to accumulating large amounts of debt, they could end up worse off than when they started.

There are two main issues with pulling money out of a 401(k) before someone reaches the age of 59. The first problem is that fees and taxes will take a chunk of money out of what is available. An average of 30 to 40 percent of the money someone takes out of a 401(k) will go to taxes and fees, so removing $25,000 from an account will only leave someone with $16,250 to pay off their debts. Additionally, once the money is removed from the account, people are no longer benefiting from interest on that money being added to their account.

Another major issue with taking money out of a 401(k) to pay off debts is that if someone has a habit of overspending, they may end up paying off their debts, only to go into debt again. This leaves someone with little to no money for retirement and a large amount of debt.

Those struggling financially may benefit from filing for bankruptcy. An bankruptcy attorney may be able to help someone understand what bankruptcy could do for them and what is involved in the filing process.

Source: Post Crescent, "Alan Prahl column: Weigh options before tapping 401(k) to pay debt", Alan Prahl, June 07, 2013

Email Us For A Response

Free Case Evaluation

* indicates required field

Miller & Miller Law, LLC
  • VISA
  • Master Cards
  • Discover
Milwaukee Office map Madison Office map Kenosha Office map

633 W Wisconsin Ave, Suite 500
Milwaukee, WI 53203

Phone: 414-312-6581
Fax: 414-277-1303
Milwaukee Office

2810 Crossroads Drive
Suite 4001
Madison, WI 53718

Phone: 608-260-7133
Madison Office

6123 Green Bay Road
Suite 210
Kenosha, WI 53142

Phone: 262-326-1669
Kenosha Office

Appleton Office
4321 W. College Ave.
Suite 200
Appleton, WI 54914

Phone: 920-280-3838
Appleton Office

Brookfield Office
200 S. Executive Drive
Suite 101
Brookfield, WI 53005

Phone: 262-261-0665
Brookfield Office

Glendale Office
6001 N. Green Bay Avenue
Glendale, WI 53209

Phone: 414-973-8662
Glendale Office

Fax: 414-277-1303 - We also have offices in Appleton, Glendale and Brookfield to better serve you.