credit & debt

Use a 401(k) to Pay Off Debt?

Think long and hard before you tap long-term retirement savings to pay off a short-term debt.

I have accumulated about $40,000 in my 401(k) plan at work. I’ve also racked up about $8,000 in credit card debt. Can I take a hardship withdrawal from my 401(k) to pay off my credit card bill? -- A.M., via e-mail

Unless you are in dire financial straits -- such as facing foreclosure -- you probably won’t qualify for a hardship withdrawal. But you may be able to take a loan from your 401(k). If your plan permits, you can borrow as much as half of your balance, up to $50,000. In most cases, you can take up to five years to repay the loan with interest, which goes back into your account. A loan, while not usually advisable, can make sense if the rate you are paying on your card debt is higher than what you’re earning on investments.

Think long and hard before you tap long-term retirement savings to pay off a short-term debt. If you lose or leave your job, you’ll have to repay the loan within 60 to 90 days. If you don’t, it will be treated as a distri­bution subject to income taxes, as well as a 10% early-withdrawal penalty if you’re younger than 55 when you leave your job.

Better alternatives to CDs

Any suggestions on where I can stash my cash in this scary economy? CDs are paying pitifully low rates, but at least they are FDIC-insured. -- Gail Bjork, Hobe Sound, Fla.

With the average one-year CD paying just 0.39%, there are better places to keep your money without tying up your funds. That way, you’ll be able to switch to a higher-yielding alternative when rates eventually rise.

SallieMae Bank has a money market account yielding 1.10%. It has no minimum-balance requirement, no monthly fees and offers check-writing privileges -- although you are limited to six withdrawals per month. Discover Bank is paying 1.10% on its no-fee, FDIC-insured savings account, which requires a $500 minimum deposit.

Some checking accounts are paying as much as 4.09% on balances up to $10,000 if you meet the qualifications, which include receiving your account statement electronically and making ten to 12 debit card purchases a month (ATM withdrawals do not count), plus one automatic payment or direct deposit per month. Look for high-yield checking accounts at www.checkingfinder.com.

New Medicare enrollment deadline

When is open season for Medicare Advantage and Part D plans this year? Are the dates the same as they were last year? -- E.C., San Francisco

Some big changes have been made to the open-enrollment schedule for Medicare Advantage and Medicare Part D this year. That means you’ll need to make key decisions about your 2012 coverage several weeks earlier than in the past.

You have from October 15 to December 7 to pick a Medicare Advantage plan (a private plan that provides medical and prescription-drug coverage) or a Medicare Part D prescription-drug plan for the coming year. (Open enrollment used to run from November 15 to December 31.)

By now, you should have received your current plan’s “Annual Notice of Change,” which will advise you of any alterations to plan benefits or premiums, or tell you if the plan is being discontinued. If you are in a Medicare Advantage plan that closes, you must pick a new one by December 7 or your coverage will automatically shift to traditional Medicare on January 1, 2012. If that happens, you’ll need a separate Part D plan to provide prescription-drug coverage, plus a supplemental medigap policy to provide coverage for deductibles and co-payments. Use the Plan Finder tool at Medicare.gov to compare prices, co-pays, deductibles and coverage for all of the Part D and Medicare Advantage plans available in your area or call 800-633-4227 for help.

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