Dear Chuck,

I’ve been socking away money in a 401(k) account for years. I’ve tried to live like the ant in Proverbs. I have no plans to retire any time soon, but I may take some of the money to pay off credit card debts that accumulated during my wife’s health issues. I want to tithe on any money I withdraw. What is the rule for tithing on retirement accounts? 

Tithing on 401(k) 

Dear Tithing on 401(k), 

Congratulations on ”living like the ant” and saving money for your retirement! The Proverbs teach us in two separate references that this is a habit of the wise. (Proverbs 6:6, 30:5). You now have some options, so let’s consider what is best for you.  

I’ll make some assumptions about your age and income in order to offer practical advice, but obviously adjust based on your actual circumstances. We’ll assume that you are in your early 60’s, still healthy, enjoying your work and able to earn a full time salary well into the future. 

Understanding the rules of a 401(k)

I would not be quick to pay off a credit card using money in your 401(k). Most people are concerned with how to maximize a 401(k). There are rare situations where paying off debt with a 401(k) makes sense. It is important to know the facts.  

• You can only withdraw ‘elective-deferral contributions’. Those are deposits you made beyond what your employer deposited. Whatever the company put in is not eligible for debt repayment.
• A layoff is an exception. Hardship situations like significant medical expenses, purchasing a home to prevent foreclosure or eviction or necessary home repairs MAY be allowed. And, debt is sometimes considered an eligible hardship.

Early withdrawals are subject to income tax plus a 10% penalty. And, the amount you take out of your account could put you into a higher tax bracket.

If you have a loan with an interest rate above 18%, borrowing might make sense. But calculate your interest costs versus tax penalties and have a knowledgeable person run the numbers before you decide to withdraw. I would only choose this option after you have considered the alternatives. 

There are better ways to reduce debt!

Hopefully, you have an emergency savings account apart from your 401(k). We recommend that this is 3-6 months of your monthly income set aside in a bank account that you can access without penalty. It would be my advice to use those funds to pay off your credit card debt, then set up a plan to rebuild it as your first priority. This will be far less expensive. 

For anyone struggling with overwhelming credit card debt, I highly recommend Christian Credit Counselors. You start with a free debt analysis and their team of experts will help you reduce your interest rates, consolidate your payments, and create a payoff plan. Their proven process can get you out of debt up to 80% faster! 

You should also consider these tips: 

• Negotiate your rate and term with your credit card company. Good credit could get your rate dropped by several percentage points.
• Use the snowball or avalanche methods to pay off debt faster and reduce the total interest you’re paying. You can use a free debt snowball calculator here. 
• Transfer your balance to a lower interest credit card. Just make sure you know ALL the terms before doing that to avoid future trouble.

A 401(k) account is retirement money that you should avoid accessing. If you withdraw money once, you may be tempted to do it again. So, pray for guidance!

If any of you lacks wisdom, you should ask God, who gives generously to all without finding fault, and it will be given to you. (James 1:5 ESV)

Tithing

If and when you withdraw funds from your 401(k), you tithe a percentage of the earnings on your account, not the original deposited amount. This assumes taxes and tithes have already been paid on the principal amount. For instance, if you deposited $500 each month out of your salary for one year, a year in which you were already tithing on your gross income, you would not tithe on the withdrawal of $6,000 in your 401(k). However, if that money has earned $600 through investment returns, you would tithe on that portion only, if you withdraw more than you originally deposited. 

Freedom to Tithe

Tithing is not a law, but a physical demonstration of our commitment to God. He established the tithe as a readily identifiable sign of our sincerity. It is a means by which we gratefully acknowledge our Provider. Please do not make tithing a legalistic requirement or treat it like a tax. God loves a cheerful giver. You are free to give all of your 401(k) as the Lord leads or to adjust your amounts according to your personal convictions. 

For those trying to pay off debt, I recommend giving now even if only a dollar a week. God is more interested in our hearts than in any actual gift amount. Although there is no punishment if we fail to tithe, there is a loss of blessings. We should seek to honor God with our whole heart and acknowledge His ownership of all that we have. 

Give First, Save Second

I believe Scripture is clear that He established divine priorities for how Christians are to handle money. We are to give first and save second. This sounds like a habit you have established in your life. 

Even those who live paycheck to paycheck and put all extra income towards paying off debt should attempt to cut other expenses and start giving. It may not be 10% at first, but a gift in any amount establishes a grateful heart and a stewardship mindset. It shows that we understand that all we have has come from the Lord. 

Honor the Lord with your wealth and from the firstfruits of all your produce. (Proverbs 3:9 ESV)

Giving as the top financial priority actually helps people make better financial decisions and avoid materialism. Giving is good for your health and finances!

Thank you for your heart to honor the Lord. I hope you can pay off your credit card debt without having to access your 401(k). If you have to get into those funds, I trust the Lord will lead you to give cheerfully as you honor Him. Keep living like the ant and working as unto the Lord in all you do! 

Originally published on the Christian Post, October 25, 2019.