Retirement Income Plan - Dipping into Retirement Account Can Cost Plenty
Many people today are evaluating their retirement income plan. With the difficult economic situation we are facing these days, more retirees and those close to retirement are considering taking money our of their 401k or IRA to help get past these tough times.
I came across a good article in the South Florida News, dated August 23, 2010 that talks about the problems one can run into when you do take money from a retirement account. It states that it can cost you plenty if you do withdraw you funds.
People think that the emergency withdrawal section of their retirement plans can save them, but taking our your "rainy day" funds can have a long lasting effect on you plans.
Be careful as there are only a certain category of things that the government will allow that money to be spent on, such as immediate foreclosure or eviction. And of course, you still have to pay taxes on any early withdrawals from retirement accounts when you file your return.
W.B.M., I totally agree with you. Taking money out of a retirement account early can really hurt you in the long term. In addition to the 10% penalty you face if you withdraw prior to age 59 1/2, you are loosing the growth value of that withdrawn amount.
The intent of the emergency provision was indeed for a true emergency, not just for a new car or the next item on the list.
One should be careful, especially after the economic recession of 2008-2009, since most 401k and IRA accounts did see a drop in the overall portfolio amount. This means that it takes just that much longer to get back to the position you were in prior to the recession, if you ever do get back.
Even if it takes a couple of years to get over the "rainy day" problem that one might have, it is probably better to hold off on any IRA withdrawals if you can possibly do it.
Wishing you the best in your retirement years.
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