As you can imagine I consult with tons of job seekers all of the time.  One of the common things I hear from those that have been out of work for a significant amount of time is the struggle to keep income coming in.  Some have managed to rely on unemployment income, some have allowed their homes to go into foreclosure, some have borrowed from their retirement accounts, and others have simply adjusted their lifestyle to compensate for their income status change.

I spoke with a representative at Edward Jones for some advice on what job transitioners could do to survive a moderate to lengthy transition and they had this to say, specifically with regard to borrowing from their 401(k):

Before you cash out your 401(k), make sure you understand what’s involved. Your former employer is required to withhold 20% of your account balance to prepay federal taxes. Also, all your 401(k) proceeds will be taxed as ordinary income. And if you’re under age 59½ when you liquidate your 401(k), you may also be subject to a 10 percent penalty. And worst of all, the money may not be available to you when you retire.

Obviously, if you have no other financial resources, you may have no choice but to tap into your 401(k) plan.

However, if you can find an alternative way to tide yourself over until you’re working again, you may be better off in the long run by not cashing in your plan.

If you decide against the “cash-out” option, what can you do with your 401(k)? Here are two possibilities:

• Keep the money in your former employer’s plan. If your former employer permits it, you may able to leave your money in your 401(k). You won’t have to pay any immediate taxes, and your money can continue to grow tax deferred. But you may no longer be able to add funds to your account.
• Roll your money over to an IRA. If you roll over your 401(k) assets to an IRA, you’ll avoid paying immediate taxes, and your money can continue to grow tax deferred. Furthermore, you can fund your IRA with many types of investments, as opposed to a 401(k), which may offer only a handful of choices. And when you can afford it, you can make additional contributions to your IRA. Also, when you retire, you may find that an IRA gives you more flexibility in making withdrawals than a 401(k).

In summary, saving while you have steady income is still the best policy, no matter how much you are able to save. However if you have already found yourself in a hard situation, 401K borrowing may be a tough yet necessary choice for you and your family.  Just remember, that this will impact your retirement goals and should be used with caution. Continue to believe God for your provision and He will open the windows of heaven.

QUOTE OF THE DAY:  The LORD will open to you His good treasure, the heavens, to give the rain to your land in its season, and to bless all the work of your hand. You shall lend to many nations, but you shall not borrow.

*Brenda M. Cunningham is not a financial advisor and the financial advice provided here was via the web articles of Edward Jones, if you need clarification, please contact Edward Jones https://www.edwardjones.com/en_US/financial_focus/articles or your personal financial consultant.

Brenda M. Cunningham is a Certified Professional Resume Writer and National Job Search Strategist. Brenda’s mission is to eradicate unemployment and underemployment and to help accelerate your job search. For more information on customized resume development, group workshops, and job search coaching visit www.royalresumeaz.com