Why Not To Take Early 401k Withdraws
Taking out an early 401k withdraw can be tempting, but think twice before you do because there are a lot of disadvantages to doing it. Here are a few 401k information that can help employees see just how dangerous it is to take out a withdrawal from their accounts early.
The first reason that early withdraws can hurt you is because you will have less money in the future when you eventually retire. By taking out $5,000 now you will have $5,000 less when you retire.
However there is another cost to look at. By taking money out now you lose the potential interest that you would have made off of those investments.
Getting out $1 today may mean that you lose $1 tomarrow, but it also means that you lose $3 or $4 in interest that that $1 would have made. Those might not seem like big numbers, but when you multiply it by thousands you can see exactly what I mean. Remember having the ability to save and wait are common characteristics of the wealthy.
The last major disadvantages is the early withdrawal penalty that you can be hit with. The 401k withdrawal rules force all investors who take money out of their account before the age of 59 ½ to pay a 10% early withdrawal penalty. And that is in addition to all the taxes that they normally have to pay.
What this means is that by taking out money early a good chunk of that money will go to paying these bills. To cope with that you would have to take out even more money hurting your future even more.
Taking out money early is usually considered a bad idea. Unless it is an absolute emergency then the 401k should be left for retirement.
Tags: Disadvantages of Early 401k Withdraws, early 401k withdraws
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