Tuesday, March 11, 2008

Raiding your retirement to save a house

It's surely a sign of desperate times - withdrawing money from a retirement account to stave off foreclosure. I understand wanting to hang on to a house, but it is just a house.

Cashing out a 401(k) to save a house, is basically doubling down on the house. Putting everything you have into it. You are gambling that things are going to turn around, what if they don’t? What if you end up declaring bankruptcy?

As long as your 401(k) money is in a 401(k) account, it’s untouchable by the bankruptcy courts. However, if you withdraw your 401(k) money and put it into a house, it will most likely be handed to your creditors.

This situation continues to get ugly, but it is a consequence of living life paycheck to paycheck, with no emergency fund, and buying homes beyond one’s price range, etc. That type of
financial behavior is reckless, irresponsible and it will eventually catch up to you.

Certainly, no one wants to see this happening. Some lessons can be brutal especially when people live like there is no tomorrow.

For more PF articles, please visit the Carnival of Taxes courtesy of Texas Journalist, Kay Bell. My article "Knee deep in Turbid Tax" was included this week.

No comments:

Post a Comment