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Plymouth, MA 02360

(508) 746-4663

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Most people have a 401K.  Have you ever been tempted to use it to pay for things like your child’s college education?  This is seldom a good idea!Retirement investment security and financial protection of savings as a symbol with 401 k on an egg in a nest protected by a blue umbrella against volatile storms and hardship in the economy and as a tax shelter.

Why?  Because:

  • Taxes are owed on the amount you take out for both federal and state (if applicable).
  • If you are under 59 ½ years old there is a 10% penalty on top of the taxes owed. For example, $10K, $1K penalty.

Think about:

  • Taking a loan on your 401K. You have to pay yourself back and you have to watch out for the fees but it may be a worthwhile alternative.  Plan to be with your employer until the loan is paid off or you will owe taxes and the 10% penalty if you don’t pay back the loan.
  • Tapping into your IRA. The IRS allows you to take money from your traditional IRA for qualified higher education expenses and not have to pay the 10% penalty. You will owe taxes but not the penalty.

Think before you tax money out of your 401K.  Weigh the alternatives and if you have questions give me a call.