Don't Stifle Your 401k with an Early Withdrawal

Taking a 401k early withdrawal is something that many people consider when they change jobs. If they need money for any emergencies, they think about cashing out the 401k and getting the money they need. While it is an option, it is rarely the best option you have. An early 401k withdrawal can cripple your retirement and waste a lot of money. Here are a few things to think about if you are considering an early withdrawal.

Early Distribution Penalty

The worst part about taking an early distribution on your 401k is the early distribution penalty. When you take your money out before you are 59 1/2, you will pay a 10% penalty on the money immediately. This is designed to keep people from using their retirement money unless absolutely necessary. If your account is big enough, this can be a large financial hit.

Taxation

Besides taking the 10% penalty off the top, you also have to pay income taxes on the money that you receive. Therefore, you will probably only receive 50 to 60% of the money by the time you pay the penalty and pay your taxes on it.

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