I’m terminally ill with only about 3-5 years left to live — I have $270K in a 401(k) and $30K in debt. Should I withdraw everything at once or take smaller withdrawals to minimize taxes?

Balancing comfort with financial security

Let’s consider the scenario of someone who’s just received an end-stage diagnosis. When facing that news, ensuring a comfortable and stress-free end-of-life experience becomes a top priority.

In-home palliative care can cost up to $6,500 per month if not covered by Medicare — and that’s assuming you don’t require round-the-clock care. Using the $270,000 in your 401(k) could help pay for these expenses, allowing you to focus on your well-being without financial stress.

Beyond medical costs, tapping into your retirement savings could significantly improve your quality of life. That money could allow you to address your $30,000 in debt, stop working, travel or check off bucket-list experiences with your family.

Additionally, terminally ill individuals may qualify for penalty-free withdrawals from their retirement accounts under the SECURE 2.0 Act, making early access to funds more financially feasible.

However, before making any major financial decisions, consider the long-term consequences.

If you have dependents, emptying your 401(k) may not be the best move for their financial security. While penalty-free withdrawals are possible, the money you take out may still be taxable, potentially impacting your beneficiaries’ tax brackets and overall financial stability.

Estate planning also becomes a critical factor. If you withdraw and spend all your retirement savings, your loved ones will inherit significantly less. Keeping funds in your 401(k) allows for better estate management, ensuring your assets are distributed according to your wishes.

And then there’s the unknown factor — life expectancy is never guaranteed. According to the Journal of Palliative Medicine, 12–15% of hospice patients live beyond six months. If you outlive your initial prognosis, having already depleted your funds could leave you in a difficult financial situation.

Retire richer: The secret to building wealth faster

Most people miss out on key opportunities to grow their wealth. Partnering with the right financial advisor can help you secure a brighter future. Learn how to make your money work harder for you today.

Discover the secret

Dealing with death and debt

If you believe you are about to pass on soon, ignoring debts seems like an easy choice. But your debt does not disappear after death.

Creditors can still go after what you owe. Any money, property and other assets left in your estate will be used to repay debts before getting distributed to your beneficiaries. If you already drained your retirement account, you risk leaving loved ones in an even bigger financial bind.

If your estate does not cover all the debt you owe, creditors may choose to write off the balance. But again, this is only after exhausting all remaining assets.

There are options for terminally ill individuals to help with debt before their passing. Debt consolidation, charitable assistance programs and selling your life insurance policy may all be avenues to manage debt. Consider focusing on secured debts first, such as car loans and mortgages, as those could be repossessed for failure to pay.

Most importantly, these options should be explored before passing to secure your estate.

Planning for the future

No one’s future is certain, and living with a terminal illness only emphasizes that more.

Whether you’ve decided to spend your final days living life to the fullest or remaining cautious for the sake of your family, smart financial planning is always the best choice.

Drafting a will, establishing beneficiaries, listing your assets and updating your estate plan ensures a smoother path through end-of-life care, allowing you to spend the most time with your family and to make your final moments and dollars count.