Don’t Withdraw From Your 401(K)

If you don’t know whether or not to take money out of your 401(K), the answer in nearly every case is not to do it. finding extra money is always a hassle,but taking it away from your future is not a good idea if you have any other option at all. In many cases, this is the only place someone has saved money of any amount, and it’s a very tempting thing to consider. Here’s why you shouldn’t take money out of your 401K.

If you take money out of your 401K, you will lose a lot of it in penalties and taxes. You pay back taxes (because it was originally deposited tax free). These can add up to 20% or more of the total amount you withdraw. There are also penalties in the range of 10%, to prevent you from taking it out in the first place. For some people, they will lose 40% of the amount they withdraw just in taxes and penalties! Not only that, but now your future is less financially secure, because the money is now gone. Is that really something you want to do?

For many people, they lose their job, or switch jobs, and open a 401k rollover account. The money gets moved into a self directed IRA account, where you can invest in anything you want. Often, the broker will not take out the penalties, as an employer managed plan would do, so you pay taxes on your next tax return but it’s left up to you to pay any other penalties. You will still owe that payment, but you have that extra flexibility. Yet, is it really worth it? As you get older, you won’t be as likely to be able to make up the money difference. Find any other way you can to make extra money now. Downsize, cut your expenses, sell some things at a garage sale. Give up treats that are too expensive, and substitute less expensive ones, like movies at home instead of at the theater. You can avoid taking money out of your 401K if you find other alternatives, your future is worth it.