Cashing Out Your Retirement Early

Should you ever cash out your 401(k) or some other retirement account early? If you have discovered you have an incurable disease or terminal illness, you might use the retirement funds to do whatever you want to, simply because you won’t be there in the future to share in the benefits of the account.

Even then, before you act, you might want to be absolutely sure your illness is going to be terminal. Once you begin withdrawing money from the account, collectors of medical bills and other debt collectors may seek a judgment against you. So before exposing the money, make sure you have good medical insurance or plenty of time to spend the money before judgment day. Judgment day is the day your bill collectors, in this case collectors of medical bills, take you to court to get a judgment against you in order to collect what is owed. 

Are there things you shouldn’t buy with your retirement money? Absolutely! Retirement accounts were designed by law for one particular reason, to help take care of you when you reach a certain age. To take money out of a retirement account before then is unwise. 

Unfortunately, many people today, most of whom are not terminally ill, are taking their future and pouring it down the drain. According to a report in the Wall Street Journal, companies that run 401(k) programs are seeing increases in the amounts of loans being taken out against retirement funds. It is estimated that currently one out of three people with 401(k) plans have outstanding loans. 

The Wall Street report claims the current economy and housing crisis have caused people to borrow against their retirement accounts, or in some cases, cash them out to pay their bills. Their hope is to replace the money as soon as they get another job, but it has become increasingly hard to replace a lost job with a job with comparable pay. 

It is NEVER a good idea to borrow against your retirement to pay your creditors, unless you are terminally ill and trying to pay living expenses. Retirement accounts, in most states, are exempt assets in bankruptcy cases. Bankruptcy laws prevent creditors from going after protected retirement accounts. You may be in financial trouble today, but there is no reason to jeopardize your financial future. 

I speak from experience. I emptied two retirement accounts because the economy was bad, the accounts were losing money, and I thought I would eventually replace the money and invest it. I was wrong on both accounts. 

With the experience and knowledge I have today, if I had it to do all over again, I would leave the retirement funds alone. Most likely, they would be providing additional income. There was NEVER a good reason for me to empty the accounts. 

There is one bright spot in my story; we never had to file for bankruptcy protection. I came from a poor family, and I learned how to live with very little money. We have always managed to pay our bills on time, and the only loans we have ever taken out have been for homes and vehicles. It has been our household policy to never pay interest on credit cards, so we have never used the cards beyond what was earmarked in our checking account, and we have always paid them in full monthly. 

Not everyone has been as financially fortunate, and there are events beyond our control which can cause bankruptcy. Bankruptcy laws were placed in existence for your protection. It is NEVER a good idea to empty your retirement account to pay your creditors, but in some cases, filing for bankruptcy protection IS an option. 

Bankruptcy laws can be complicated, and you may need a bankruptcy lawyer to answer your questions. If you need relief from the stress of debt and you live in or around the metropolitan area of Tuscan, Arizona, contact us at .We will help you find a bankruptcy attorney in your area.

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