Ask Terry Questions 401k withdrawal to pay off student loan for son

401k withdrawal to pay off student loan for son

By Terry Savage on March 26, 2015 | Credit/Debt

My mother is thinking of withdrawing $25k from her 401k after she retires next year at the age of 70 to pay off my brother’s student loan, which she co-signed. My brother has been in and out of work and right now is currently unemployed. He has deferred his loan payments. Also, my mom still has a balance on a mortgage that she just refinanced two years ago. Given her financial situation, is it a good idea for her take out the money from her 401k?

Terry Says:   Oh no.  I hate to hear situations like this!  I consider it a WARNING to anyone who co-signs a loan for a child or a friend: DONT DO IT!!

I’m afraid your mother is going to be on the line for this loan, no matter what happens.  But I definitely wouldn’t take the money out of the 40l(k) to bail out your brother.   It will be protected inside her retirement plan — and she might even have to take a fixed annuity to keep the balance away from the collection agencies.  And how is she going to pay the monthly amount on her own mortgage if she retires.

She needs some financial counseling — and the easiest, no-cost way to do it is to call the National Foundation for Credit Counseling at 800-388-2227.  That will connect you to the nearest local office. Make an appointment and go with her — because your common sense should prevail over her instincts to help your brother!



a personal
finance question