It may seem attractive to raid your 401k retirement plan to pay your home mortgage, especially if you are having difficulty making payments, but this usually isn’t the best choice. Read on to learn about a few of the reasons why you shouldn’t raid your 401k for mortgage payments…

1. Usually, a significant amount of taxes are paid on the amount of money withdrawn from a 401k plan. According to irs.gov, a ten percent penalty tax must be collected if you raid the 401k funds and your age is less than fifty-nine years and six months. There are some exceptions to this rule, especially if you are at least fifty-five years old.

2. Raiding the 401k to pay your mortgage will easily improve your financial situation in the short-term, but becomes harmful in the future. Your retirement income might be significantly diminished, and working for a greater number of years could become necessary. It is worth considering other methods of raising the needed money, like selling an automobile or temporarily working more hours. Using more difficult methods such as these will make the situation harder now, but you are likely to feel it was a good decision upon reaching retirement age.

3. Unless it is your intention to entirely pay off the mortgage using the 401k, it is only a temporary fix for the problem of not being able to afford the monthly payments. If you remain in the same home and monthly income does not increase greatly, this problem may reoccur unless long-term financial changes are made (including measures aimed at coping with unexpected expenses more effectively).

4. You may not be able to depend upon social security to provide sufficient retirement income, especially if you are relatively young or have been unemployed for long periods of time. A white paper issued by the White House Council of Economic Advisors in 2005 stated that social security will eventually not have enough income to pay for the benefits it normally supplies, probably in the year 2042. It warns that these benefits will have to be significantly reduced.

Overall, although there are some situations where it may be the only realistic option to raid your 401k, this is a decision which can have serious consequences. Before deciding to raid your 401k retirement plan to pay the mortgage, make sure you have thoroughly considered all alternatives which are available to you, and fully understand its impact.