Have you heard that you are able to take money out from your 401k before you turn 59 ½ ? While it is not always a wise decision to make it can help you out if you are having a hard time financially and desperately need money now.
Even though it is frowned upon to take out money before the age of 59 ½ there are ways for you to can do just that, just make sure that if you do you are withdrawing because you need to take money out and aren’t doing it to buy some new fancy car.
So what will happen if you decide to take money out early? According to the 401k withdrawal rules you are able too take money out before you reach the age 59 ½, however you will be hit with a 10% penalty on your money in addition to that you will have to pay taxes on the money.
Having to pay both can really take a large chunk out of your money. It can also greatly affect your long term retirement plan. If you take out $15,000 today would mean you will have less money when you eventually retire, which is when you would need it the most.
When you factor in other things such as the interest you would have made on that money it can be even more expensive.
One of the ways you can get around this is to simply take a loan from your 401k rather than taking out a withdraw. This will allow you to not have to pay a 10% early withdrawal penalty and you will not have to pay taxes on the money.
The 401k loan rules do offer a few advantages, such as a very low interest rate and a 5 year payback period. These benefits in some ways make it appear much more attractive for the average person then a simple withdraw.
But it does have its disadvantages as well. For one thing you may not be able to deposit more money into your retirement savings account while you have a loan out. This can singlehandedly stop you’re saving in its track and cause you to be unprepared when retirement comes around.
In conclusion there are a number of different options available for you whenever you want to take money out of your 401k early. Even so it should still be a last resort kind of deal. The impact it can have on your overall retirement account simply cannot justify taking money out to buy a new gadget, but it can be justified if it is the only way to stop you from declaring bankruptcy.
That being said if you are in a real emergency such as a disability or you have a lot of unpaid medical bills that are piling up you may be able to tap into your account without having to pay the extra penalties for withdrawing. But check with your accountant to make sure you qualify before making a decision.
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