May 7, 2012
Think Twice Before Raiding Your Retirement Account
Are you tapping your retirement accounts as a solution to economic hardship? Find out how you could be impacting your financial future.
If you're facing economic hardships, borrowing or withdrawing money from your IRA or 401(k) is tempting. But it can significantly impact your long-term savings because you'll sacrifice the gains those funds would have earned. Over a couple of decades that could add up to tens or hundreds of thousands of dollars.
The tax implications can also be severe. You generally have five years to pay back 401(k) loans. But if you leave your job, even involuntarily, you must pay off loans immediately or owe income tax on the remainder. Plus, face a potential 10 percent penalty. And, if you withdraw the money, it will be added to your taxable income, which could bump you into a higher tax bracket.
Bottom line: Think carefully before tapping your retirement savings.
Email to a friend