Should You Empty Your 401K To Pay for a Wedding?

A sad man watching money fly out of his wallet.Photo bypathdoc via Shutterstock

Financial literacy is lacking in the United States. If you don't believe it, peek on any financial forum and look at the questions.

One user on a Reddit forum dedicated to financial management for people with little money highlighted the lack of education regarding finances when they asked the community if they should drain their 401K account to pay for a wedding.

Agreed To Pay, No Money

The Original Poster (OP) came to Reddit seeking advice after ignoring the high cost of his pending nuptials for far too long.

He claimed he wanted to provide his future wife with her dream wedding, so he stood silently as she signed notes for vendor after vendor.

Realizing the Price

It took OP far too long to realize how much money he signed up to spend.

“As time went by, I realized that the total cost of our wedding was an absurd amount of money,” he said, adding that he was afraid to do the math to see how bad it really was.

Should Have Said No

OP realizes he should have played a more significant part in the wedding planning. He mentioned that he should have hindered some of her requests, but feels like everything is now signed off on, so he’s unsure what to do.

Can’t Cancel

OP refuses to cancel. Invites are out, and his soon-to-be bride is ecstatic about the pending nuptials.

Unfortunately, he bit off more than he could chew.

How To Pay

OP doesn’t have the money to pay for the wedding. He came to Reddit because, as he describes, his only option is to cash out his 401K to pay for it.

Although it seems like he’s set on the decision to cash it out, he came to the community seeking a second point of view. He’s afraid of hurting his future financial security and asked if there are any ramifications he hasn’t considered.

DON’T DO IT DON’T DO IT

Even users in a community called “Poverty Finance” agreed that cashing out a 401K to pay for a party is the worst idea in the history of ideas.

OP would be destroying his future to pay for a single night.

Compounding

One user said that OP isn’t considering the total opportunity cost of using his 401K to pay for the wedding. He’s not just losing the money he takes out; he’s losing all the potential gains that money could have made over the next 20-40 years.

If he took out $20,000, he’s not only losing that 20K, but he’s also losing an additional $90,000 over the next 25 years, assuming a 7% rate of return. It’s insane to throw that away for a party.

Taxes and Penalties

Other users informed OP that any early withdrawals from a 401K account result in early withdrawal penalties and a tax on the distribution.

Early withdrawals typically cost 10% in penalties, and he must pay taxes on any distributions.

What if the Marriage Doesn’t Last?

We don’t want to consider that a marriage will fail, but is it worth the gamble? How would you feel if you took all your money out of your 401K to pay for someone else’s dream wedding, only to end up single five or ten years down the line?

It’s not worth the gamble.

Cut and Renegotiate

OP doesn’t have to cancel the wedding altogether. He must sit down with his fiance and develop a reasonable wedding budget. Then they need to go back to the drawing board and decide which vendors to keep, which to cut, and where there might be wiggle room.

If OP is ready to get married, he must be prepared to discuss finances with his bride-to-be, and they must be able to compromise on a wedding that fits their budget.

If they can’t do that, the marriage is doomed to fail, which makes the 401K withdrawal even more ridiculous.

This article was produced and syndicated by Partners in Fire.