Liquidating my 401k
The government wants you to keep your money in these accounts for a long time, so they use these tax penalties to strongly discourage you from withdrawing prematurely before your actual retirement.
However, this isn’t even the whole story for that early ,000 withdrawal.
We wrote this article for individual investors who want to know more about tapping into their retirement savings.
If you’re an employer thinking about whether or not to offer hardship withdrawals and loans as options on a 401(k) plan for your employees, we’d recommend this article instead: What Employers Need to Know About 401(k) Loans and Hardship Withdrawals Let’s imagine that you’re 35 years old and you’ve just lost your job.
And you would not be alone in thinking that way: A recent study indicates that 45 percent of employees cash out their 401(k) plans when they change jobs.
You must also take into consideration your missed gains if you were to rollover that ,000 into an eligible retirement account.
Assuming that your target retirement age were 65, you would miss out on a much larger amount by the time you reach retirement in 30 years.
When all is said and done, you could end up with a little more than half of your original 401(k) savings!
In addition, you will owe tax annually on any future earnings your lump sum generates.
Fearing that your job search might take longer than expected and to prevent a cash crunch, you decide to fully liquidate your 401(k) with a fully-vested balance of $15,000.