Spinoff - 401k/retirement plan-

Spinoff to my other post


What is the biggest deal about touching your 401K - lets forget about any tax and penalties.

I am in my 30s can I really not make up the money in my retirement plan? Put away more money as I get older and have less expenses?

Please let me know all the cons of touching your 401K which are not related to taxes and penalties!

Spinoff - 401k/retirement plan-

1. you are putting money back into it with payments that are going to be way higher, because your regular contributions are pre-tax. You are putting back in after-tax money.

2. If you leave your employer or lose your job before paying off the loan, you'll be responsible to still pay off the debt with money you may not have

3. If you borrow money from it, continue to have financial troubles, and can't pay it off, you will have to file for bankruptcy. In a regular bankruptcy situation, your 401k funds are safe from creditors. But if you've borrowed money from it already, you're screwed lol

Re: Spinoff - 401k/retirement plan-

Because you will lose all of the returns on the money you withdraw for the years that it is out of the account. So if you had $10,000 in there now and you don't replace it for 5 years - assuming 5% returns over those 5 years (which it would probably be more than that but let's be conservative) you have to put back in $12,763 to make up the $10k you took out.

However, I think the biggest con is that chances are you won't ever repay it. Something will always come up.

I think a better option which does not have tax implications is to take a loan from your 401K. I did this when I was in a decent amount of CC debt in my 20s. You have to repay the loan with interest but the interest goes into your account. You are essentially taking a loan out from your own money and repaying yourself with interest. Anyway, it was the best thing I ever did. I was able to get out of debt completely and I didn't lose out on potential returns since I was repaying myself at a decent interest rate.

Good luck.

Re: Spinoff - 401k/retirement plan-

The gift of time by investing when you are older, is such a steep hurdle to overcome when you are older. If you invest $3,000 a year as a 20 year old, you would need to invest nearly 15,000 as a 45 year old to end up with hopefully the same amount, but you have greater stress of coming up with the money, and market fluctuations make it seem worse. With time on your side you emotionally can manage market fluctuations because you think it is only a little money.

In addition, by taking the money out you loose on all the appreciation you could have received if you left it in. Lastly, the market is down, so you are taking the money at a bad time. So that is traditionally called timing the market, which is not good. But you would literally be buying high and selling low because if you bought in the last few years the market was doing well. So you are literally the cliche that is spoken about in buying high and selling low.