Can I withdrawal from 403(b) ?

[Anonymous]

I'm currently employed full-time (32 yrs old) and was wondering if I am able to withdrawal from my 403(b) retirement fund?  I understand there may be a 10% penalty?  Not sure how this works, if it even does.  My primary purpose for withdrawal is to pay down some of my CC utilization to get it under 40%.  That would take about $1,200.  I only have one CC and recently bought a home and leased a vehicle.  My scores aren't horrible pursay (650's), but I want to work to keep on increasing them.  Any help would be appreciated.  Thanks. 

[FinStar]

There's the tax implications in addition to the early withdrawal penalty. IMO, I would not pursue this route for a variety of reasons.

That said, I would weigh the pros and cons of doing any plan distributions, especially for CC debt reduction. Some plans may have restrictions, so it's best to consult with your plan administrator to determine what options are available in your specific situation.

[Anonymous]

I too would not go this route. For $1200 I would recommend budgeting and finding a way to throw extra money at the bill each month to pay it down

[CreditInspired]

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@Anonymous wrote:

I'm currently employed full-time (32 yrs old) and was wondering if I am able to withdrawal from my 403(b) retirement fund?  I understand there may be a 10% penalty?  Not sure how this works, if it even does.  My primary purpose for withdrawal is to pay down some of my CC utilization to get it under 40%.  That would take about $1,200.  I only have one CC and recently bought a home and leased a vehicle.  My scores aren't horrible pursay (650's), but I want to work to keep on increasing them.  Any help would be appreciated.  Thanks. 

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NOPE, don't do it! It is not even worth it for $1,200. IMHO, find another way to get your debt paid down. 

Okay to answer your question. First it depends on the plan your employer has. So let's say your employer's plan allows it. I think it's 24% that's held--20% fed taxes and 4% state. So in actuality, you would only receive $912. Then at tax time you will have to pay the additional amount (dont recall the percentage) for the penalty for being less than 59.5 yo. 

[Anonymous]

Thanks all.  That helps me.  I'll budget things out and pay it down over the next 4-5 months.  Shouldn't be too difficult.  I aprpeciate the advice and info. 

[sjt]

Have you inquired about a loan against your 403B. The interest you pay will go right back into your 403B account.

[Anonymous]

I agree with the others - taking money from retirement should be an absolute last resort and not something to just increase scores.

On the surface it can seem like a good idea, especially if you're paying high interest on the debt. But that money will grow for decades in your 403b and end up being worth way more than you'll pay on this debt.

Good luck!

[Anonymous]

Yes, doing the math can really help put it in perspective. The immediate taxes and penalties sting, but losing out on compounding interest is the real killer.

Say you are 35 today, retiring at 65. You take a $10k early withdrawal to pay off CC debt. If you left that $10k in for 30yrs with a 7% return it would grow to about $75k. So you lose out on $65k!

If you went to a bank for a debt consolidation loan and they offered you a $10k loan that would cost you $65k in interest, you'd tell them they are insane. But this is essentially what you'd be doing by taking that money out of your 403(b) early.

Classic case of stepping over a dollar to pick up a dime. But when you are having money issues right now, and retirement and those potential earnings seem so far away it can be an easy trap to fall into.

[Anonymous]

I would look into a Loan against your 403b as suggested, depending of course how much you have in there and if you'd be able to borro enough. A friend of mine borrowed against his 401K, and it went pretty smoothly.

Your 403(b) plan must charge you a reasonable rate of interest on your loan. However, the interest you pay goes back into your account, so in essence,you're paying yourself interest. The downside is that you're losing out on whatever returns you would have earned if the money had been in the 403(b) account.

That said, $1,200 isn't much to simply pay down on your own. Just have to prioritize it over other spending.  Although I would the question as to why you want to make a dent in the CC now, versus just before the Auto Loan and Mortgage. I'd say that there's no real hurry to do it now, unless the interest is killing you. 

[longtimelurker]

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@Anonymous wrote:

However, the interest you pay goes back into your account, so in essence,you're paying yourself interest. The downside is that you're losing out on whatever returns you would have earned if the money had been in the 403(b) account.

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And the non-bolded bit can be a big downside!   A lot of advisors don't look much more kindly on taking loans than on doing a withdrawal, you do save on tax and penalty, but you can still miss out on the gains while you are paying the loan back, and then once paid you still have a lower balance to compound over the next X years etc.

That said, there are situations were loans and even withdrawals are the least worst option, but reducing cc util is very unlikely to be such a case.