Article Treasure Cove

You may be contemplating taking money out of your 401k plan in order to buy a new car or remodel the house. However this can come with several setbacks.

Here are 4 reasons for trying to avoid taking an early withdraw.

1. It Comes With a Penalty

The first one is the most obvious one. If you decide to take out an early 401k withdrawal then you are going to have to pay a 10% penalty on the money. If you take out $5,000 you will have to pay $500 for the penalty which is never a good thing.

And when you add taxes to the mix then you could find that you are only going to be able to keep a small percentage of what you actually took out to begin with.

2. Hurt Your Future

The more money you take out of your retirement plan the more it can harm you during retirement. Everyone realizes this to an extent, yet sometimes instant gratification is just too big of a pressure to think about it.

The more you tap into your account the longer you will have to work before you will have enough money to retire. Something that most people do not realize when you take money out of your account you not only lose the amount of money which you took out, but you also lose the interest that you could have made off of it.

So instead of losing $10,000 you may be losing $20,000 or more.

3. Baby Steps

Studies show that by taking baby steps people can end up doing things which they would not normally do. So by taking money out today it is going to be much easier to take money out in the future.

Simply by doing something you are telling yourself that it is ok and you are allowed to do it. So avoid even thinking about it, unless you are in an emergency.

4. Maximum Deposit

There is a maximum 401k contribution that you can’t go over this means you cannot simply deposit more. Many people will be able to justify taking money out of their savings because they can pay it back later. But with a 401k the amount you can deposit per year is limited by the government and many plans are also further limited by the company that they work for.

So you may not be able to just increase the amount you deposit for the next few months to make up for whatever you took out.

Taking money out of a savings plan early is never a good idea, but there are some cases which you have no other alternatives. Drastic times call for drastic measures after all.

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Tags: 401K