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Try to avoid tapping retirement funds to pay your bills

Not only must you pay taxes if you

Not only must you pay taxes if you withdraw retirement funds to pay bills, you also lose any interest you would have gained if your funds had stayed put. Credit: Getty Images / iStock /zimmytws

While your bills are piling up today, it doesn’t mean that in desperation you should tap money dedicated to your future. Consider those retirement savings sacred.

Despite that, 52 percent of people who responded to a poll by MagnifyMoney said they had taken money from a retirement savings account and used it for purposes other than their retirement.

The top reason — at 23 percent — was to pay off debt.  

You have to pay what you owe, but is this the best strategy?

Come up with a Plan B

“With the decline in pensions, low savings rates and the uncertainty of Social Security, it’s not advisable to tap retirement savings to pay off debt, if you don’t want to work for the rest of your life,” says Christopher Congema, a certified financial planner with Landmark Wealth Management in Melville.

Even if you put the money back quickly, taking your funds out of the market for a short period of time may mean you're missing large market moves, which can greatly affect future returns, he says.

Consider the tax hit. There are taxes you must pay on the withdrawal. In addition, you also lose any interest you would have gained if your funds had stayed put.

Plus, if you’re younger than 59½, expect penalties for early withdrawal, points out Deacon Hayes, founder of

Explore other options 

“Start a side hustle,” says Hayes. Review your budget and eliminate discretionary expenses. Refinance loans and negotiate with your credit card lenders to get a lower interest rate.

Congema recommends using the snowball method to pay off debt. First, pay the minimum payments on the lowest interest rate debts and put the maximum that you can afford toward the highest interest loans to reduce those debts more quickly.

Says Congema, “You’ll get tangible results quickly, and that will motivate you.”

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