Dave Ramsey’s Warning: Don’t Tap Your 401(k) to Pay Your Mortgage

Core Insights - The article emphasizes the risks of withdrawing from a 401(k) to address rising rent and debt, highlighting the importance of long-term financial security over short-term solutions [1][3]. Group 1: The Caller’s Financial Situation - The caller has a 401(k) balance of $35,000, $28,000 in car loans, and additional credit card debt, which has been exacerbated by recent spending on a vacation [2][4]. - The caller's plan to use her 401(k) for debt repayment and home purchase is deemed unwise by financial expert Dave Ramsey, who points out that her financial missteps have derailed her debt repayment efforts [4][5]. Group 2: Risks of Early Withdrawals - Withdrawing from a 401(k) before age 59-1/2 incurs significant penalties, potentially losing up to 40% of the withdrawal amount to taxes and penalties [6][7]. - A $35,000 withdrawal could result in a 10% federal penalty and additional state and local taxes, leaving little for debt repayment or a down payment on a home [6][7]. Group 3: Financial Advice - Ramsey advises that eliminating car loans and credit card debt should be prioritized before considering a home purchase [7]. - The potential growth of $35,000 in a 401(k) at a 5% annual return could increase to $57,000 over 10 years, underscoring the importance of maintaining retirement savings [7].