Financial emergencies happen all the time. If you are maxed out and tempted to withdraw money from your retirement account, though, think again. All the hard work you put into retirement planning can be stymied by the tax penalties you pay on any money you withdraw early from a retirement fund. You can make a withdrawal if needed, but before you do, consult with the professionals at Weaver Insurance & Financial Advisors in Waynesboro, VA, to learn how this move could affect your retirement picture.
Here are a few of the ways you can be penalized:
- 25% Tax: Any retirement money you take out before the age of 59 1/2 will be counted as regular income and taxed as such. So, if you are in the 25% tax bracket, that means for every dollar you take out, you lose 25 cents. That can really add up.
- 10% Penalty: On top of the regular taxes, Uncle Sam takes a hefty 10% off early withdrawals as a penalty fee. This can really upset your retirement planning and leave you with a surprisingly big bill.
- Loss of Compound Interest: It has taken years of retirement planning and sacrifices to achieve your dreams. As any good investment advisor will tell you, you won’t just lose the capital and interest you have made, but also the increased ability to achieve compound interest. Dipping into your savings early will mean a big setback for your interest gains.
If you are considering withdrawing from your 401k, IRA, or other retirement savings account due to a financial emergency, contact a financial planner first to see if there is some other way to achieve your goals. For additional information on all the ways we can help you with financial and retirement planning or to learn more, call us at (540) 943-1221.Filed Under: Financial Services