Borrowing from a retirement account is tempting in times of financial emergencies like losing a job, or when you want to pay down bills or need extra cash for the holiday shopping season. Considering 63% of Americans live paycheck to paycheck, according to CNBC, having such a buffer can seem helpful.
By Selena Fragassi
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However, this quick fix can have long-lasting results. Not only will an early withdrawal from a 401(k) or IRA incur a penalty and tax of about 10% if you’re under the age of 59-and-a-half (per CBS), but those dollars cannot be redeposited into the account. That means not only are you losing out on the dollar amount withdrawn, but the pre-tax and employer matching dollars that initially accompanied it, as well.
Unfortunately, that doesn’t typically stop people from doing it in a pinch. According to CNBC, citing data from Bankrate, 51% of Americans have taken early withdrawals from retirement accounts. That includes 20% who said they were forced to do so during the pandemic when funds were strapped due to loss of income.
While there are some financial situations when the need to withdrawal early is inevitable, there are several ways to sidestep this move and hold on to your retirement savings. Here’s what experts advise:
