For Mark Roberts’ Use: You already know that because Social Security won’t provide enough income for most retirees to live comfortably, establishing your own retirement account is incredibly important. You took that step years ago, and have been saving faithfully ever since.
On the flip side, many people never stop to think about how detrimental early withdrawals can be. You might know that taking money from your retirement plan before age 59 ½ will trigger a 10 percent tax penalty in most cases. But there are also exceptions to the rule, depending on the type of account, such as the following:
- The account owner dies (in this case your beneficiary would be taking the withdrawal)
- You become disabled
- You incur significant medical expenses (certain rules apply)
- You lose your job and need to pay for health insurance in the meantime
- You need a down payment for a home (there is a $10,000 limit, and you can only use this exception once)
- You are subject to a Substantially Equal Periodic Payment plan (SEPP)
- You want to use the money for college tuition (for yourself or a dependent)
- You separate from your employer
- You’re subject to a Qualified Domestic Relations Order (QRDO)
- To reduce excess contributions
- To reduce excess elective deferrals
Yes, these exceptions exist, but they certainly do not equal a “suggestion”! If you’re facing one of these situations, we would still urge you to leave your funds exactly where they are, and find some other way to gather the cash you need.
When you withdraw money from a retirement account, you do so under the assumption that you will “repay” yourself. But even if you do replace the money eventually, you can never repay yourself for the time lost. For each day that money is missing from your retirement account, you are losing compounding interest that you really can’t reclaim.
As you continue to plan for retirement, stay in touch with us, especially regarding big decisions such as early withdrawals. We might be able to help you identify other ways to solve a problem, so that you can leave your retirement funds alone – healthy, and growing for the future.