Don't Touch Your 401(k)

Written by Tim Decker, AIF. Posted in The Patriot News

Q: I'm not retired yet – I'm still working – and need cash to take care of some things, so I'm thinking of taking some money out of my 401(k) plan. Is this is a good idea?

A: Unless you need the money for a dire emergency, absolutely, unequivocally not – for a host of reasons. Making withdrawals from your 401(k) defeats the purpose of these plans – to enable you to build resources for a secure retirement during your working years. Whatever your reason is for considering making a withdrawal now, think about how desperate you'll be when you're 80 and potentially could run out of money.

The money you contribute to your plan from your paycheck is generally tax-deferred, meaning that you don't pay taxes on it until you make withdrawals. One exception to this is if your 401(k) has a Roth option. In that case, contributions are made with after-tax dollars, and withdrawals at retirement, on both contributions and earnings, are tax-free. However, with traditional 401(k) accounts, withdrawals are taxed as ordinary income – at the same rate you pay on your salary. If you're under 59 ½, you may also have to pay a hurtful 10 percent penalty. Though this IRS hit from withdrawals can be fairly benign during retirement, it can be significantly more during your working years, when your tax bracket is probably much higher--especially if you're not old enough to avoid the 10 percent penalty.

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He brings his extensive knowledge and over 28 years of experience to the discussion of current financial and wealth management topics. Each show also includes a Q&A session when Tim provides straightforward, unbiased answers to questions from callers. This is the program that represents your best interests, not Wall Street's.

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The Sleep-Well-at-Night Investor


ISI Financial Group helps clients take all necessary steps to properly develop and implement a holistic financial plan using evidence-based, time-tested strategies centered around financial science. In his book, “The Sleep-Well-At-Night Investor,” Tim Decker shows readers how misinformation from the mutual fund industry has created widespread harm amongst investors. The book also discusses the temptation to think of investing like gambling, and the tragedy of gambling away savings and security under the guise of investing.

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