Question "Ok. So I'm I'm heavy financial trouble with credit card and also 2 payments behind on house. At one time had great credit but lose track and trying get back on top. So questions is i have esop at my job and considering Cashing some on and wondering if be good decision and penalties on taxes or on cash on esop"
Answer As you might guess, I would strongly discourage you from tampering with any tax qualified retirement plan. If there is any other way you can access the cash, I'd say it's probably preferable. However, this would appear to be a genuine emergency. If it is your last option, you may simply have to tap the account. Some ESOP custodians allow you to borrow from the account. While I discourage this as well, it is usually preferable to making a distribution and paying income tax and early withdrawal penalties.
Borrowing from the fund has some distinct advantages versus withdrawing from it. First, as I stated, it prevents you from having to pay ordinary income taxes on the withdrawal plus a ten percent penalty if you have not reached age 59.5. Your loan payments are paid back into the account balance, including your interest payments. You are, in effect, paying the interest to yourself. Also, contrary to common misconception, a loan against your ESOP does not actually reduce the invested amount. An amount within your ESOP equal to the outstanding loan principal principal balance is simply collateralized to secure the loan.
Here's the down side: If for any reason your employment is terminated, the outstanding loan balance is treated as a distribution, and you will be taxed and penalized per IRS guidelines.
Retirement planning, tax qualified retirement plans (401(K), IRAs, etc.), mutual funds, insurance used in retirement planning, estate planning (tax planning, transfer of assets, creditor protection).
Comprehensive financial planner, 14 years; Executive Director, Association of Christian Financial Advisors, the nation's largest nonprofit financial planning network. Financial writer and frequent contributor to journalists and media sources.
Organizations Association of Christian Financial Advisors (Executive Director), National Association of Insurance and Financial Advisors (NAIFA).
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