Tapping into a 401(k) fund should be a last resort for Hurricane Harvey victims, unless they have no other resources to rebuild their homes and lives, said financial analyst Greg McBride.
Continue Reading Below
For some people who do not have flood insurance, or who lost their savings in other storm-related expenses, the retirement accounts may be their only options, McBride, the chief financial analyst for Bankrate, told FOX Business’ Liz Claman on ‘Countdown to the Closing Bell.’
But, there are drawbacks to borrowing that money, he said. Though some lobbyists are working to combat this, hardship withdrawals from 401(k)s are currently susceptible to income tax and, if the person withdrawing money is not older than 59-and-a-half years old, a 10% penalty fee.
“So if you’re in the 25% federal tax bracket, right there you’re only getting 65 cents on every dollar you pull out,” he said.
And while McBride said borrowing is “the lesser of two evils,” he noted that it could seriously hinder someone’s retirement plan.
“Whatever dollars you worked to put back in to replace that loan, you’re putting old money back into the plan,” he said. “You’re not putting new dollars in. So you’re not going to get back to where you otherwise would have been.”