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Sep 25, 2008 5:17 pm US/Central
Experts Warn, Despite Economy, 'Don't Touch 401K'
FORT WORTH (CBS 11 / TXA 21) ―
With the American economy in uncertain times, you may be thinking about raiding your 401K, but financial experts have a warning about that plan.
You can only access your 401K if you need money for medical expenses, to avoid foreclosure on your home, for college tuition, if you lose your job or if you need to cover funeral expenses.
Even in cases of an emergency, experts say 'don't touch your retirement fund'.
Dara Boswell says, "I'm on the internet everyday looking at what the actual market is doing."
Boswell admits she's nervous. "I don't know if I should panic, quit looking at it or start calling people."
The 38-year-old usually gives advice to others when it comes to money problems, but lately she's been thinking about her own nest egg. "I worry because between my husband and I that is the bulk of our retirement."
The shaky economy and stock market is pushing many towards raiding their 401Ks. Experts say don't do it. "The penalties just aren't worth it," says CBS 11 Financial Analyst Jim LaCamp.
Keep in mind; if you pull money out of your 401K you will have to pay a 10-percent penalty if you're not 59 ½ years old. On top of that you'll also have to pay income taxes on the money.
LaCamp says, "If you are in a 35-percent tax bracket, 35-percent goes to taxes, another 10-percent goes to the IRS. You are only getting $0.55 on the dollar when you pull it out."
Boswell says her family is just going to 'ride this one out'. While they are several years away from retirement, right now the Boswell's just aren't willing to give anymore of their money to Uncle Sam.
Financial experts say another risky move is taking a loan out on your 401K. You could borrow up to 50-percent and then pay it back to yourself without having to fork over a penalty or taxes. But experts say you'll have to back the entire amount you borrowed in just a few months.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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