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401K withdrawal vs. personal loan

By Terry Savage on April 16, 2016 | College Savings / Student Loans


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.



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