Americans dip into 401K savings to help make ends meet

DELMARVA – With credit card debt hitting an all-time more Americans are now turning to their savings plans.

Something financial advisers say may not be the best decision. “As interest rates are rising and they’re paying more in credit cards, they’re starting to realize this is not sustainable,” says Mark Welsh with the UHY Group.

Credit card debt just hit over a trillion dollars, a record amount with over 20% interest rates.

Welsh says now there’s a 26% increase of Americans leaning on their 401K to make ends meet. “If you have medical expenses, you can take a withdraw for medical expenses, for purchasing a home, or to combat notice of evictions, you can use hardship withdraws for that,” Welsh explained.

The 401K program allows you to pay into it while working and in many cases, your employer will match it, however, if you try to take your money out early it could come at a cost. “If you’re under 59 and a half, you’re likely to get charged, not only a 10% penalty on the money, but you also have to pay the federal and state income tax,” Welsh said.

To put that in perspective, if you need $50,000 you’d need to take out $70,000 to accommodate for the fees. There are other savings options but Delaware State University, Professor Nandita Das says they are not enough to live off of. “Whether it is pension or social security, people may think social security will pay for retirement but social security is just for meeting the bare minimum requirement. Social security is to help you go buy a Mcdonald’s meal,” said Dr. Das.

Professor Das says dont wait save now. “Save for your retirement but don’t forget your present because you’re not going to be 30 forever.

Welsh also says that depending on how much money you take out, you will be placed in a different tax bracket which could make your taxes higher. He also urges you to look at a 401K loan before dipping into your 401K.