Is Tapping Into Your 401K Ever A Good Idea?

Is Tapping Into Your 401K Ever A Good Idea?

I’m hoping that most of you reading this have that lovely 401(k) nest egg incubating somewhere in a coop of mutual funds, stocks, and bonds. Now, I know times have changed. A lot of y’all are entrepreneurs, successful ones, and are like, “Uhh, what 401(k)?” Well, I’m talking to y’all, too, and especially those of you who left that corporate job and are on your way to being on your own. Don’t worry, I got you.

I’ve had many a friend tell me how they had to tap that 401(k) for reasons such as making additions to a home, or for emergency situations like funerals, or to start a new business. These reasons are all valid, but is it ever a good idea to tap that asset account?

In 2018, employees will now be able to contribute up to $18,500 annually to their retirement account. That’s great news, and for those that elect to do this, you’ll start to have a nice chunk of change growing for your retirement days.  For those who are self-employed, you may qualify for a Solo 401(k), or you can talk to a former employer about keeping funds with them, or you can simply open an IRA. But that money you’ve saved might start to look reeaaaal good. You might start salivating about how you want to have it now or how you need it for one of the reasons I mentioned above … but hold on, lovelies! Have you thought about the fact that if you take a loan from your 401(k) you’re susceptible to:

  • Being taxed twice on that dough. When you take your money out, you’ve got 90 days to put those dollars back in the bank. If you do, great (sorta), because you won’t get a penalty tax. But, you will be using after-tax dollars to pay off the interest on the loan. If you don’t get that money back in within the 90 days, it becomes a distribution which gets that lovely penalty tax (unless you’re over 59 1/2) and then an income tax, potentially. Yes, you have those three months to put this sweet cash back into your account, but if you’re like most people, ain’t none of that money making it back to that nest egg. #Taxed

Read the full article HERE.

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