Phone Call Us 414-326-9231
Toll Free 866-678-9352
Text Us 414-277-7742

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

Contact Our Milwaukee Law Firm

Reach Miller & Miller Law, LLC, online or call us at 414-326-9231 to schedule a free initial consultation. Our law office also provides Spanish language services. Se habla español.

To schedule an initial consultation, call 414-326-9231 or contact Miller & Miller today.

Free Case Evaluation

* indicates required field

Milwaukee Office
633 W Wisconsin Ave, Suite 500
Milwaukee, WI 53203

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

Kenosha Office
6123 Green Bay Road
Suite 210
Kenosha, WI 53142

Phone: 262-326-1669
Kenosha Law Office Map

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

Phone: 262-261-0665
Brookfield Law Office Map

Madison Office
2810 Crossroads Drive
Suite 4001
Madison, WI 53718

Phone: 608-260-7133
Madison Law Office Map

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

Phone: 414-973-8662
Glendale Law Office Map

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

Phone: 920-280-3838
Map & Directions