Use your retirement money to avoid foreclosure?


You can't pay your mortgage? And you're looking for a way to make ends meet so you don't lose your home? One option being touted is cashing out a retirement account and using the proceeds to pay the mortgage. Unfortunately, while this is a legal option, it's often a horrible idea.

It's become far too easy to shuffle money around without thinking about the tax consequences or the long-term savings consequences. And this option is absolutely terrible in both of those regards. While many retirement plans do have provisions that let your borrow from or cash out of your retirement account to avoid foreclosure, it can be expensive.

Borrowing against your retirement fund is a better option, because it doesn't create any tax consequences. But it's not free money -- you have to pay it back to the retirement fund with interest. And of course, you're losing out on the interest, dividends, or increased fund value you could have gotten while the money was in the retirement fund.