Dave Ramsey Says Paying Off Your House With a 401(k) Is a Huge Mistake

Core Insights - Millions of Americans rely solely on Social Security for retirement, making those with a 401(k) ahead in savings [1] - Personal-finance expert Dave Ramsey warns against using 401(k) funds for non-retirement expenses, emphasizing the risks involved [2][3] Financial Implications - Early withdrawals from a 401(k) incur income tax and a 10% penalty if under 59½, leading to a potential loss of about 40% of the withdrawal amount [3][4] - Financial experts, including tax professional Karla Dennis, highlight that state taxes can further increase penalties on early withdrawals [6] Recommendations - The consensus among financial experts is to avoid early withdrawals from a 401(k) unless in absolute emergencies, as the long-term financial impact can be significant [7] - Ramsey suggests focusing on debt repayment and maintaining retirement savings rather than cashing out a 401(k) for immediate needs [4][8] Long-term Considerations - Every dollar withdrawn from a 401(k) reduces the amount available for compound growth, which is crucial for retirement when income ceases [9]