Why should you not withdraw 401K before retirement?

Are you employed? Feel lucky! There are millions of people unemployed across the globe. Don’t go for resignation before the time has come. You might be thinking of cashing out 401(k) and then your financial issues are solved, but actually NO. Many of you claim to resign because you are passionate that you will find a new job soon. This is a great risk. You should have avoided running into such a situation. This blog explores why you should not withdraw your 401(k).

401(k): Avoid withdrawals!

According to financial planners, it is not advised to hurry for resignation and 401(k) withdrawal. As you know, the unemployment rate has increased since the pandemic hit the world economy so how can you expect to find a job sooner? It happens for a fraction of lucky people and there is a huge risk that you might not be that lucky individual. So, is it a profitable choice to resign and withdraw 401(k)?

In America, a massive population quit their jobs and many of them also cashed 401(k) to survive in that hard time. According to a survey, every 21 people out of each 100 requested withdrawal of 401(k). But, this is not advised by experts. They recommend leaving the retirement account aside until retirement arrives as it keeps growing and helps you in real hard times.

Upon leaving the job, you may feel tempted to withdraw the savings. It is natural to feel so, but you should acknowledge the risks involved and be patient.

When you request for 401(k) cashout before the age of 59.5 yrs, you are charged ten percent. Moreover, your cashed-out amount is taxed as income and hence you have to pay more tax. It will become difficult for you to survive the hard days as well. This could further cause you to work longer than you early intended as the compound interest has a huge negative effect on the savings.

Naturally, you all want a “work is optional” phase in life irrespective of your craze for the current job. And this is also true and evident that early withdrawal of 401(k) delays the opportunity of reaching this stage.

Take Away!

You might have no other choice than to cash out the savings because of an emergency. However, in some cases, your 10% penalty can be waived off as well. These scenarios include being disabled, or if you have to pay taxes and medical insurance. Although, again, the cashout is taxed as income.

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