Financial Advice By: Carmen Wong Ulrich
Q: I know that 401-Ks are supposed to be for retirement, but I could REALLY use that money today. Can you please explain the fees/taxes that are associated with liquidating your 401-K and are there any exceptions in the laws that would allow me to use my unemployment status to avoid them?
A: I realize you may just need access to those funds to, for example, stay in your home. Of course, I’d rather you not touch that money—it’s your future. And if you simply cash-out a 401k or other retirement account, you can get hit not only with taxes, but severe penalties that can wipe out 40% or more of your balance. If you need it that badly, get to it the right way—by applying for a hardship withdrawal. This kind of formal withdrawal allows you access to the funds in your 401k, but without the penalties, only the taxes. For more information on hardship withdrawals, you can read all about it on the IRS website! Good luck!
About the writer: Carmen Wong Ulrich is the co-Founder and former President of ALTA Wealth Management and a Professor in NYU PolyTech‘s school of Finance and Risk Engineering. She is an author and the former host and co-creator of CNBC‘s “On the Money,” and currently the money advice columnist for Good Housekeeping, a contributor to MSNBC and CNN as well as a frequent expert guest on ABC’s “The View.”