There may also be fees and other consequences triggered by withdrawal. Foss at Empyrion Wealth Management said it might be better to simply annuitize the contract completely.

Borrowing From A 401(k)
For some, leveraging a retirement account makes the most sense.

“Investors with a 401(k) may be able to take a loan of up to $50,000, depending on their account value,” said Kristin McKenna, a managing director at Darrow Wealth Management in Boston. In most cases, the limit is $50,000 or 50% of the assets, whichever is less.

The interest will be low, without a credit check. After all, you’re effectively borrowing from yourself. But removing money from retirement savings can have a ripple effect. Those funds will no longer be invested, and some plans won’t allow any additional investments until the loan is paid back. What’s more, if you leave or lose the job, the balance may be due immediately.

Taking Early Withdrawals From Retirement Accounts
Instead of a loan, consider an advance from a qualified retirement plan. If you’re not yet 59 and a half, taking money out will usually trigger a 10% penalty. But not always.

“There is a useful exception,” said Daniel V. Hawley, founder of Hawley Advisors in Walnut Creek, Calif.

Called a Substantially Equal Periodic Payment (SEPP), it allows annual distributions, calculated according to an IRS formula, for five years or until you turn 59-and-a-half, whichever comes later, without the 10% penalty. Income tax will be due, however, and if you cancel the plan before it concludes you have to pay all the penalties you otherwise avoided, plus interest.

Nice as it may seem, a SEPP isn’t right for everybody. “A better option is to build up cash reserves by stopping retirement plan contributions during a period of temporary crisis,” said Hawley.

Preston Forman, a certified financial planner and senior partner at Seasons of Advice Wealth Management in New York, said he “gently begs” clients not to tap IRAs or 401(k). In his experience, borrowed retirement funds are rarely paid back. “It should be your last choice,” he stressed. “I’m a purist. Retirement money is for retirement. Something always comes up and years of highly compounded money evaporates.”

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