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When you are in desperate need of cash, your 401k account can look like an attractive option. After all, if your account has been receiving automatic contributions from you each month along with a percentage match from your employer, you could be growing quite a nest egg. There are certain situations where you may be able to withdraw money from a 401k without a penalty, including if you become unemployed or are purchasing your first home. Otherwise, you could face a 10% penalty on the money withdrawn as well as income tax. This could easily add up to a 40% haircut right off the bat. Do not give away almost half of your savings to the government unless you are in dire straits and have absolutely no other option. Not only will you lose a good deal of your money if you withdraw it from our 401k, you will also do a lot of damage to your retirement savings plan. One of the most important concepts related to retirement savings is “compound interest”. When you save money, it gathers interest. That interest is added to the principle, which then gathers more interest. Over a long stretch of time, compounding interest can help your contributions grow at the rate needed to sustain you in retirement. The beauty of compound interest needs time to work. If you withdraw a huge chunk of your 401k, you are not only losing that principle amount, you are also losing all of the interest it could generate over the decades, which could be a significant loss. If you are experiencing a cash crunch, there are usually other options available besides withdrawing from your 401k. You should also consider creating a rainy day fund to help cover unexpected costs. If you have questions about investing for your future please give us a call, scan the following to call our office. Wealth and Wisdom Online Your personal CFO will provide you with the right solution that fits your lifestyle and financial planning. Our step by step process makes it easy for anyone to achieve their financial goals.
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