3 Downsides of Taking an Early 401(k) Withdrawal
Taking an early 401(k) withdrawal might be tempting in certain circumstances, like if you're temporarily out of work or if you're looking to make a large purchase in the near future. Depending on the degree of the emergency, a 401(k) withdrawal might be a valid last-resort option. However, if there are ways to avoid taking money out of your 401(k) early, you'd be smart to explore those paths.
Let's discuss three reasons you might want to think twice about hitting "submit" on a 401(k) withdrawal request.
If you take money out of your pre-tax 401(k) before age 59 1/2, you'll be hit not only with ordinary income taxes, but with an additional 10% penalty on the total amount withdrawn in most situations. That means that you may only receive $0.60 or $0.70 on the dollar after taxes. Depending on how much money you withdraw, the taxes alone can run into the tens of thousands of dollars. Needless to say, an early 401(k) withdrawal is a costly choice in more ways than one.
Source Fool.com
