I am getting divorced and we currently own a home. I am not going to be able to afford the house and will need to get an apartment and some basic furniture. I have already taken money out of my 401k as a loan. I am 36 and contemplating taking a withdrawal for the remainder (which really isn't even that much, like 5k) of the money so that I can get an apartment for myself and my son. I know there are huge penalties etc... but is it really that bad to do? I can't get a loan because my name is on the mortgage. We are doing a short sale on the house because of the housing market. Any advice would be greatly appreciated!

It's hard to answer this question without knowing your income. Additionally, it's hard to answer the question without knowing how much cash you have; I can only assume you have none.

As you probably know, when you pull money out of a 401k, you will pay federal and state income tax in addition to a 10 percent penalty. If you don't remove this money, it will continue to grow tax free until your retirement. So yeah, it's pretty bad. Basically, 40 percent of your (and your husband's since it's a joint asset?) 401k savings will go to the government.

If it were me, I wouldn't remove the money unless there really is no other way out. And if the question was to: a) have furniture; or b) have a 401k, I'd have a 401k and save up cash for Goodwill/garage sale furniture.

As someone whose parents are divorced, I know this is a difficult time for all involved. But I can tell you that my parents divorce completely wrecked both their finances. It set off a series of bad financial decisions (e.g. my Mom wanted us to continue living in the style to which we were accustomed) that have left them near retirement without any retirement funds. My advice: if you can't pay cash for it, you can't afford it. And save at least 15 percent of your pre-tax income. Financial stability is worth a lot more to kids than designer clothes or a nice apartment/house.

Best of luck.

Thanks Frank! That is great advice!

You are very welcome. I would also add that now is a particularly bad time to cash out a 401k because stocks are down about 35 percent this past year. So you would likely be cashing out at, or near, the market low, further penalizing yourself on top of the government's already hefty take.

Thanks again! I'm going to try and keep what's left of the 401k - providing my husband doesn't take it all!!