If you are struggling with financial burdens you may be considering dipping into your retirement accounts to get a handle on your debt. We strongly urge you not to borrow against or withdraw from, your retirement accounts to pay back debt.

Your retirement funds are one of your most important assets. Unless you absolutely have to touch those funds, you should not. We understand that you may want to avoid bankruptcy, but using retirement funds in an attempt to avoid bankruptcy is not a good solution, likely won’t work, and will create new tax debts.

You Will Not Lose Your Retirement Funds if You File for Bankruptcy

In general, retirement accounts are protected through bankruptcy. In Georgia, your 401(k), 403(b), and pension are protected. Most retirement plans that have a penalty for early withdrawal are exempt. This means that you will be able to keep all of the funds in those accounts and erase your debts through bankruptcy.

Bankruptcy law allows for retirement funds to be protected through bankruptcy because it is good public policy. The idea is that people who have funds for retirement are better able to provide for their needs as they age, rather than relying solely on government benefit programs.

Unless it is truly, truly necessary – it is never advisable to dip into your retirement savings early, or to help manage debt, or to make purchases.

Tax Consequences & Penalties for Early Withdrawal

Early withdrawal from a retirement account can result in penalties and tax liabilities. Instead of helping you, this may push you further into debt.

Consider this: even if you are able to withdrawal from your retirement account to pay off some, or even all, of your debts, the withdrawal itself creates a new debt. This is not a wise financial decision. If you’re considering this option, it is time to consider how bankruptcy can help you. Filing for bankruptcy is not an easy decision, but it may be the best financial decision.

Also, if you dip into your retirement and it does not solve all of your financial problems, then you may still need to file for bankruptcy and you will be worse off. New tax debts cannot be erased through bankruptcy. In this situation, the result may be that you still end up filing for bankruptcy, you still owe new tax debts after bankruptcy, and you have less money in your retirement account (which you would have been protected through bankruptcy).

Further, the IRS has much stronger collection powers than many other creditors. For example, if you do not pay your tax debt, the IRS has the power to garnish wages or seize money from your bank account without first suing you. On the other hand, most creditors, including credit card debts and medical debts, must first bring a lawsuit against you and obtain a judgment before they have the power to garnish wages or levy bank accounts.

To understand why debt settlement is rarely a better option than filing for bankruptcy, read our article Is Debt Settlement Better Than Bankruptcy?

Consult with a Bankruptcy Attorney

Before you dip into retirement savings in an attempt to avoid bankruptcy, we urge you to consult with a bankruptcy attorney. Borrowing against your retirement accounts will likely be a waste of money and it may impede your ability to get a fresh financial start through bankruptcy.

We offer free consultations to anyone in the Savanna, Georgia area. Call us today (912) 351-9000 or click here to schedule your free consultation.


The Law Office of Barbara B. Braziel proudly serves all of Savannah, GA and the surrounding counties including Chatham County, Effingham County, Bulloch County, Bryan County, Liberty County, Long County.


We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.

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