How to Use Superannuation to Pay Debts

Superannuation funds (more commonly called pension funds in the United States) are one of the most tax-advantaged retirement accounts, but they're available from certain companies only. In most cases, you're not allowed to withdraw from a superannuation without paying a penalty in taxes and other fees. Company-managed pension funds are subject to the rules of the company that owns them. Contact your company's human resources department about whether there are any hardship exceptions for early withdrawal from the pension fund.

Instructions

1

Contact your company's human resources department and ask about early withdrawal penalties for money in your superannuation fund. Mention that you need to withdraw the money early to pay off some of your debts to preserve your financial security. In many cases, companies offer hardship exceptions to early withdrawals. If your union manages your pension, you may have to contact the human resources department of that organization for more information about using superannuation funds to pay down your debts.

2

Ask your pension plan administrator if you're allowed to borrow money from your pension to pay down your debts. In some cases, your company may be willing to lend you money in return for withdrawing a commensurate amount from your pension. You will be essentially withdrawing money from your pension early without needing to pay any penalties or running afoul of any company rules regarding early use of pension funds.

3

Check to see whether your pension qualifies for an exception by the IRS. In many cases, if you retire before age 55 and gain access to a pension plan from your company early, you may be allowed to withdraw from your pension without paying any additional tax penalties. In addition, if you are withdrawing the money because you have become totally disabled, you may be able to waive the tax penalties for doing so.

4

Withdraw money from the pension fund and pay all relevant fees. All pension funds are tax-advantaged by the IRS, so you will also pay an additional 10 percent federal tax on the withdrawal and it will count towards your gross income for the year for the purposes of calculating income taxes.

5

Spend the money on paying down your debts. You may need to provide a record of this payment to your company to avoid consequences for misusing money provided for hardship purposes.