Tapping into Your 401k Prematurely
There might be times where you simply need to take out money from your 401k early. However, there are some consequences to doing this. For all those considering taking out money early and want to know what to expect here is some information on 401k plans that you may find helpful.
Something that you can do if you need the money is to simply take a 401k withdrawal. In this case you may be hit with a 10% penalty on your money; in addition to that you will also be forced to pay taxes on it.
Between the taxes and the penalty you would only be left with a small portion of what you originally had.
There are some ways to get around this. If you qualify for one of the 401k hardship regulations then you may be able to withdraw money without the added penalty.
Another option you have available is the ability to take out a 401k loan. This way you do not have to either pay taxes or a penalty because you are just taking out a loan.
But this also comes with some disadvantages. For one if you take out any loan you are going to have to pay it back with interest. If you are taking out the loan because you are unable to pay your bills then taking on more bills is not going to save you.
Whats worse, if you take out a loan you could be limited on how much money you can put into your 401k, depending on the type of plan you have. So if it takes you a long time to pay down the loan then it can stop you from depositing any more money and hurt your retirement even more than if you just took out a regular withdraw.
In the end it is probably better to avoid taking out money from your account before you need it, unless you are in an absolute emergency. And even in a situation like that only taking out as much as you need to survive can be a wise idea.
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