While many 401(k) balances have hit a 10-year high, many experts say they've also seen a surge in hardship withdrawals.
While many 401(k) balances have hit 10-year highs, many financial experts say they've also witnessed a surge in hardship withdrawals.
It's a move that should be the absolute last option, money managers say.
"You don't want to sabotage your retirement. You will trigger taxes, and that is serious damage that is tough to repair," said Sharon Oberlander of Merrill Lynch.
Oberlander, who is rated among the top 100 female financial advisors, said pulling money out with a hardship withdrawal will automatically alert Uncle Sam, who will require a 10 percent penalty plus taxes on the "income."
One could wipe out 40 percent of their nest egg before they even see a penny of it.
With college costs soaring, Oberlander said she's also seeing too many parents mistakenly think of their 401(k) account as a back-up college fund.
"They're probably better off saying to their kids, 'Get the loans and I will help you make those payments,'" she explained.
Most college-bound young adults, she said, can get loans and part-time jobs.
Other options for emergency funds, as suggested by Oberlander:
Oberlander maintains that almost anything is better than wiping out your retirement fund.
"That is your future," she said. "If you have not provided for yourself for retirement, no one is going to give you a loan for that."
|$mart Money: Navigating the Road to Financial Freedom|