Avoid Foreclosure

Many people try to avoid bank foreclosures by withdrawing money out of IRA. But this move can be equally risky as a foreclosure. A better and smarter way out is to procure a loan from your retirement account.

You can always apply for loan from your retirement account under section 401k. Unlike withdrawing money from retirement funds that will invite taxes, a loan from 401k is not taxable. Moreover, it avoids the 10 percent early withdrawal penalty that is usually levied on amounts withdrawn from retirement funds.

Taking a loan from your employer’s 401k plan is an alternative, but there is a catch to it. If you happen to quit the job, you are no longer entitled to borrow from the plan. Under new tax laws, you can star your own 401k plan under self employed 401k. It is very easy to start your own plan. Additionally, you can get your IRA and SEP plans transferred to your self employed 401k plan. If you have a self employed 401K plan, you can borrow up to half of your account balance. If you are a business man, part time or full time, you can set up a self employed 401k retirement plan. It is the equivalent of the plans enjoyed by employees of large companies. As this plan is designed for an individual it involves less process work and is less expensive to run.

Usually to maintain a 401k plan an individual has to shell out less than $200 a year. Under this plan you can avail loans with terms of 5 years or more. The best part of the loan is that all your payments towards principal and interest return to your retirement account. However, defaulting on your 401k loan payment will lead to IRS taxation.

The best way to avoid foreclosures is to avail 401k loans.