This is a guest post by Kevin Craig who is a financial writer with various finance related Communities. He has been providing advice on debt relief since 2007. With his advice many are now living a debt free life. You might like to visit the page debt settlement California. You can get in touch with him at kevin.craig672@gmail.com
Millions of consumers in the US are financially crippled after the recent economic meltdown. The consumers are frequently swiping their credit cards without exercising financial discipline. In order to manage their daily expenses they exhaustively used the card. Many people suffered job loss or wage cut so they failed to pay back the owed amount to the credit card companies. There have been a large number of people close to their retirement who have suffered wage deduction as well as incurred debt. They are looking for a debt relief option to wipe out the debts before their retirement. The most feasible option for these senior citizens is to enroll in a credit card consolidation program. This debt relief option will help to eliminate their debts as well as improve their credit score. But you might be wondering how these financially crippled people can eliminate their debts? If you do not want to get crush under the burden of debt after retirement then you can use your retirement account to pay off the owed amount. But before you withdraw fund from your retirement account consider the fee, taxes and penalties that will be imposed on the account.
The long-term, tax-advantaged savings accounts are 401(k) plans and IRAs that is generally used as your retirement accounts. You need to evaluate 401(k) plans and IRAs to know whether it will be appropriate to use it to pay off your debts.
Know about 401(k) Loan:
You are eligible to take out loan up to $50,000 or half the value of your account from your 401(k) account. You are not liable to pay taxes when you withdraw money from this account so it is an advantage of this account. You can pay back the principal as well as the interest back to your retirement account. Try to approach your lenders if you planning to take out loan from your 401(k) account and the IRS permit to do so.
Know about the penalties imposed on withdrawal from your 401(k) plan:
You are not required to pay taxes when you repay the loan on time but it will be considered under taxable distribution if you do not repay the loan on time. If you discontinue service with the employer you are required to repay the loan in full within 60 days otherwise the outstanding balance will be considered as a taxable distribution. And 10% penalty tax will be imposed on your regular income taxes if you’re below 59 ½ years. If you borrow from your 401(k) account then you’ll not get the tax-deferred interest that might have accrued on the borrowed funds.
Know about IRA account:
You can use the 60 days roll over provision if you have a small amount of debt to pay. You can borrow from your IRA account for 2 months and use the fund to pay off the owed amount. If you urgently need fund to pay of the owed amount then it is beneficial to borrow from the IRA. It usually requires less time and you can access your money faster.
What are the penalties imposed on withdrawing from your IRS account?
There are benefits as well as drawbacks of borrowing from your IRS account to pay off your debts. Remember that the growth shall slowdown on your retirement account as you have withdrawn the fund from this account. In course of time, if you have changed your job and failed to pay back the owed amount then you are subjected 10%withdrawal penalty.
Therefore, you should remember that above mentioned points before planning to tap your retirement account to pay off the debts. Retirement fund is considered to be your asset to safeguard your financial future. So you need to evaluate these points before using your retirement fund.