Why You Should Use Credit Instead of Your Retirement

Because of the high cost consequences you’ll incur if you cash out your 401k early there is good cause to consider using credit instead of your retirement.

If you cash out your 401k before you reach the retirement age, fifty nine and a half years old, you’ll have to pay a ten percent early withdrawal penalty, but it doesn’t stop there. You’ll also have to pay federal taxes and state taxes on the money you withdraw, which varies from person to person, but can easily add up to thirty to forty percent of the amount you withdraw.

This is already a huge blow, but what often gets overlooked is that you’ll also be losing out on the money you would have earned over the years until you retire. Each year your investments earn back a return for you that you’ll be missing out on in your retirement, which can be a huge blow and could mean you’ll have to put off retiring for a while. Withdrawing early from your accounts means you are putting off handling the consequences of your financial troubles until a much later date, but you will still have to deal with them.

Whereas if you take out a small loan instead you’ll have a relatively low interest rate (when compared to the amount withdrawing early will cost you) and you’ll handle the consequences of your actions now instead of putting them off for years and then having to handle a financial mess. This second part can also be a reason why many would prefer to use these accounts instead of credit–they plan to repay the money they took from the accounts over time and prefer the idea of putting off the situation until a later date. The truth is, however, that you’ll have a much larger amount to repay with the early withdrawal penalty than you would have to repay on interest for a loan, and without an immediate deadline for repayment many will never repay that money to their accounts.

It may sound wrong, but the truth is that for most situations it is recommended that you use credit instead of withdrawing from your retirement early.

Retirement accounts don’t have to be so confusing. At my site I try to simplify how to do everything you need to, like 401k balance questions, contribution limits, cashing out, and other 401k and IRA options people need information about.

Article Source: Why You Should Use Credit Instead of Your Retirement

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Why You Should Use Credit Instead of Your Retirement

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