401K withdrawal vs. personal loan
Hello,
I am a 30 year old. I am quitting my job to go back to a trade school to become a web developer. I cannot work while in this program because it is expected to take between 50-80 hours a week. I have financing in place to cover the school’s tuition (13K), but I need about $7,500 to live on while in this program. I currently have approx. $17,000 in my 401K and was thinking about doing an early withdraw instead of taking out an additional loan to cover my living expenses. I also have about $10,000 in undergrad loans that I am putting on deferment until I complete this school and have a steady job again. Any recommendations/guidance on the 401K withdraw vs. a personal loan would be appreciated.
Terry Says: Gosh, I hate to see you make that withdrawal. You’ll have to pay taxes, AND a 10 percent penalty for early withdrawal. Plus, you’ll lose all the future tax-deferred growth on the money. I can understand your reluctance to take on more debt. But the correct advice is to do it that way — take on the debt — and then pay it down as quickly as possible. Look for a low rate credit card, which is probably your best bet. Hopefully, you can get a part time job to make payments on the card. And, please double check the reputation of the “trade school.” I have heard way too many stories of ripoffs — education not worth it, jobs not available etc. So Google the name of the school and check on lawsuits, complaints, etc before you get into this.