The Dangers of Raiding Your IRA and 401K

retirementYou may be in a financial position where you’re considering raiding your IRA or 401K retirement fund: Maybe you want the money to pay off existing debt or have immediate cash needs. While your retirement fund may seem just like an ordinary saving account with a sum of money that’s accessible and waiting to be spent, you should avoid dipping into these accounts at all costs. Raiding your IRA or 401K will likely hinder your ability to satisfy your financial goals in the future.

Tax Implications

In most cases, if you withdraw money from a Roth IRA or 401k before age 59 ½, you will be charged a 10% penalty and standard income taxes on the account. Though you can avoid the penalty and taxes on the withdrawals of your contributions with a Roth IRA, you will be charged the penalty and taxes on the withdrawals of profits—there are some exceptions to this rule, such as death, disability and medical expenses.

Despite these exceptions, most Americans who make early withdrawals are not exempt from the charges. The Internal Revenue Service (IRS) reported Americans paid almost $6 billion in retirement penalties in 2011. Between 2007 and 2011., Americans workers lost over $5 billion each year on average due to early withdrawals.

Missed Opportunities

Along with paying taxes and penalties, you are missing out on opportunities to grow the money you withdraw.  By withdrawing the funds, you no longer allow that money to be invested in the market and grow over time. Even if you pay back the amount you withdrew, long-term returns have been significantly impacted. With a retirement plan, your money is being invested in the stock market, and every day counts. Being out of the market for just 20 days can cost you $10,000 in investments.

What Can You Do?

Raiding your retirement fund early jeopardizes your future. While your immediate needs may seem more important, you will regret tapping into your retirement fund, as many Americans do. If you are considering withdrawing from your account, instead contact Broadstar Financial Group. We can help you get a debt consolidation loan and get some of the monetary relief you need right now.