Congratulations on having a retirement account! If you have a retirement account with at least some money in it in your thirties, you’re way ahead of most of the American population. If you don’t yet have a retirement account click here for info on how to set one up.

Since financial education isn’t really taught in American schools (though it should be!), it took me until age 28 to realize I should open a retirement account- and I only figured it out because I started listening to tons of finance podcasts. A lot of people I know are the same way- opening retirement accounts late in life or wondering in their thirties whether to open them at all yet. Some people are lucky and have money automatically placed into a 401K through their job. However, if your job offers you a 401K, make sure you’re actually enrolled in the program. More than one close friend of mine realized that they weren’t automatically opted in to their workplace 401K, and had ended up missing out on years of compounding interest in their retirement accounts…because they weren’t saving anything!

So..back to the title of the post. Let’s say you suddenly need money and for whatever reason, you haven’t saved anything in a savings account. What should you do?

Well, if you’re considering taking money from your retirement account, think twice. This is usually a very bad idea, and should not taken lightly.

Here’s some advice for what to consider before you pull money from your future (also known as your retirement account):

• Do you really NEED to buy this? The financial advisor Suze Orman always distinguishes between needs and wants. If you’re trying to buy a car because you have no car and absolutely can’t get to work without one, that’s a need. If you’re trying to buy medication for your diabetes, that’s a need. If you’re buying a new coach bag, that’s a want. If you’re buying a vacation, that’s a want. If what you’re buying is a NEED, then continue reading. If what you’re buying is a WANT, don’t even THINK of pulling money from your retirement account!! Stop right now! Wait until you’ve saved money in a savings account!
• What type of retirement account do have? Choose below:
  a. A 401k
  If you have a 401K, it’s a really bad idea to take money from it before retirement unless you’re absolutely, totally desperate and what you’re buying is a NEED (and taking money is still a bad idea even then.) You’re going to be hit with a 10 percent penalty fee right off the bat, plus you’ll have to pay taxes on the money taken.

B) An IRA (Individual Retirement Account)
If you have an IRA, it’s also a really bad idea to take money from it before retirement unless you’re absolutely, totally desperate and what you’re buying is a NEED (and once again. it’s still a bad idea.) Same penalty fee and income taxes owed on the amount taken as the 401K. You’re going to lose so much money in the process of doing this! There are a few exceptions to having to pay the fee though – read about them here.

C. A Roth IRA

This is still a bad idea unless you’re absolutely, totally desperate and what you’re buying is a NEED, but it’s your best retirement account option. The wonderful thing about Roth IRAs is that they are kind of like savings accounts in that you can borrow from them at any time without fees or taxes owed. However, you can only borrow from the money you’ve contributed and not the interest earned. But if you take money out (which I don’t advise because you’re hurting your retirement account and it’s ability to compound and generously earn you more money), at least you aren’t getting charged a fee and taxes on money you’ve borrowed from yourself!

This is yet another reason to open a Roth IRA if you don’t have one yet!

Hopefully you’ll never get to the point where you absolutely need to borrow money from your retirement account. But if you do, I understand, and I get that you’re in a very hard situation.

Hopefully this has been helpful, and you now know that borrowing from your retirement accounts should be your absolute last option!