You could reduce your month debt by putting your children in public schools. Use some of the extra $400 towards your emergency fund/savings. And leave the retirement accounts alone. The bottom line is that your family are going to have to make some serious financial decisions, and using your retirement should not be an option. Or get a second job and tackle each debt one day at a time.
I also send my children to private schools. It is an absolute requirement in our Orthodox Jewish Community. However I have made it clear to everyone in my life I would NEVER touch my IRAs to pay school tuition. I will simply tell the schools that money is not available for tuition and they will have to set tuition accordingly. Since I work for the government and have an increasingly rare defined benefit pension I don’t have a 401K but the rules for IRAs are similar.
When you withdraw from your 401K you are charged a 10% penalty for early withdrawl. In addition 20% is withheld for taxes (so when you file you may get some of this back, depending on your circumstances). So you would essentially have to take out $41,600 in order to end up with an amount of $32,000 to pay the debts.
Where I am confused is the school bill. I completely understand the desire to have your children in the private school, and I’m sure you have thought this through. Is this 12,000 in back tuition? Will you be charged another $12000 next year? In the state of Arizona you get a tax credit for payments made to private schools. This credit is $800. So even though my children do not attend a private school, I can pay $800 towards my friend’s daughter’s tuition and then I receive an $800 credit on my state taxes. This is how she pays for her daughter’s school. A good friend of our organized a campaign to help her. Several people in her church, mom’s groups and sports clubs pay to her tuition and then receive the state credit on their taxes. If you talk to you school a lot of times they have sliding fees, or discounts available if you are having a hard time making your tuition.
I agree with the comment about your 401K interest being low. 4% is too low. We don’t have anywhere near what you have invested and we are at almost a 9% interest. I would study that a little and see if there are better options for the investments.
The 20% for taxes is for the Federal taxes only! I needed $18,000. to pay off some bills and I allowed 20% for taxes. When I filed my 2005 taxes I found out I still owed $2,100. for state taxes. I asked my accountant how that could be and she told me that unless I tell my financial advisor to take out for state taxes they will not do it!