Ask Terry Questions Use 401k to save the day?

Use 401k to save the day?

By Terry Savage on January 20, 2019 | Financial Planning / Retirement

My wife and I own a small healthcare business with 2 employees. It was averagely profitable but never our main income source. I work full time at a different company. Over the past several years she has had medical issues that have kept her from working for long stretches. When she’s unable to see patients, it’s a struggle for the company to make money at all. We’ve been bad about managing our money and are spending money we don’t have despite her not working ( in addition to medical bills ). We have reached the end of a 45k bank line of interest and exhausted other emergency funds and are about to not be able to make payroll.

I have about 55k in a 401k and she has another 10-15k in Roth IRA.  We want to pull all this out and use it to pay back the business line, cover a 8k tax bill and reduce our personal credit card balances (which are in the 25k range combined), as well as cover the Next payroll. We know that after tax and penalty it won’t be as much but paying interest on credit line, tax penalty, credit card aprs, we think this is the only way to take the pressure off and would be money well spent because the reduction in overall debt. It’s not like these retirement funds were enough to retire on anyway! (We are 39 years old).

Horrible idea?

Terry Says

I think you’re in a ‘horrible” spot!  And even if you do use your retirement funds to pay down your existing debt, you haven’t solved the REAL problem!   Your “business” is losing money!  You can’t afford to go on that way.  It’s like digging a deeper hole!

I am going to recommend that you contact the National Foundation for Credit Counseling at 800-388-2227. That connects you to the nearest local office.  You can trust them.   You need to completely reorganize your life — and you are young enough to do it.  I don’t have all the facts so I can’t really be of help.  And I don’t want to pile on your woes, but there is a huge element of “fooling yourself” in this posting.

First, I would like to point out that you are going to pay taxes AND a 10 percent early withdrawal penalty on that 40l(k) — not to mention losing all FUTURE growth.  At least one-third of the money you take out will go to the government!   So you don’t really have enough money to pay down your bank line, much less your credit cards!

My other thought is that your should close this business and your wife should get a job with benefits!  Then you can both start paying down your debt and saving for the future.  It will be the right thing for your employees (payroll) as well.  They deserve a job with a future.

I hope you will follow my suggestion to make that call.

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