Using Your Retirement Account as an Emergency ATM Just Got Easier — The Wall Street Journal
You get $1,000 for an emergency of your choice. It could be a doctor’s bill or groceries.
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More Not Sports: “emergency” borrowing from 401(k)
- Thread starter jethreauxdawg
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I don't see the point, still have to pay taxes on it if you don't pay it back.
If you're going to withdraw money, just withdraw it from your Roth.
If you're going to withdraw money, just withdraw it from your Roth.
In addition to what Goat said, only a limited number of times you can withdraw…
fortune.com
A new law lets you pull $1,000 from your retirement fund for emergencies
SECURE Act 2.0 makes it easier to withdraw money from pre-tax retirement accounts.
A lot of these new 401(k) withdrawal rules are only if your plan makes an amendment to allow them. With the administrative headaches and small amounts of money involved, I suspect most plans will just ignore them.
Yeah, considering the dire shortage of retirement savings that currently exists for so many Americans to begin with, I’m generally not high on legislation that turns a 401k into an ATM.
That said, 401k accounts have traditionally had pretty strict withdrawal penalties which is a reason for some to be leery of contributing at all, and if this will give more people confidence in savings, I can get behind it. At the end of the day, $1k isn’t going to make or break someone’s retirement
That said, 401k accounts have traditionally had pretty strict withdrawal penalties which is a reason for some to be leery of contributing at all, and if this will give more people confidence in savings, I can get behind it. At the end of the day, $1k isn’t going to make or break someone’s retirement
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Since we're on the topic, adding a couple more ways to get early access to 401k funds:
- Rule of 72(t)
- Rule of 55
- Rule of 72(t)
- Rule of 55
Most just let you get a loan anyway but limit the number you can have. We're a society of debt and it's a lower rate and peoples eyes light up not giving a crap about that 5%+ they lose on investment.
Pro tip: don't borrow from your retirement unless the ox truly is in the ditch.
I borrowed money from my traditional 401K to help with my daughter's wedding not too long ago that worked out well and I have now paid it back. While there is some lost opportunity on the money because its no longer invested when you pull it you normally get a LOT better interest rate than if you are taking a personal loan (given for a wedding there is no asset for collateral). Also the interest charged gets paid back to you and not a bank. Its definitely a good option in certain cases and if you take it out during a downtime in the market you could actually gain.
Really? I'd always heard that when withdrawn that the IRS automatically taxed you a 35% penalty so for every $1000 w/drawn they penalized you $350. So maybe the interest rate paid back is better than a bank but the tax penalty $$ is gone. Correct me if I'm wrong because I don't claim to be Dave Ramsey
No, your company has to have a program for it, but if you are just borrowing from your 401K with a system to pay it back over time then there is no penalty and no taxation. If you don't pay it back then you would definitely have to pay taxes on it and probably a 10% penalty for early withdrawal unless its for some situation that meets an exception. 5 years is normally the maximum loan period allowed.
He's talking about borrowing from his 401(k), not withdrawing the money. Loans aren't taxable unless they're not repaid on schedule. As for the rate, it's supposed to be a market rate so he shouldn't get any better rate than he would borrowing from a bank. In practice though, I suspect you usually get better rate from your 401(k). But you're really robbing Peter to pay Paul here. Lower interest rate on your loan = lower rate of return on your retirement savings.
That's a valid concern but being worried about needing the money later is also a good reason that people don't contribute as much to 401k's as they should.
I wish they would just establish something that operates like a 401k combined with deferred comp. Employees can put all of their salary into it and it is their money and protected in the event their employer goes bankrupt, but they can withdraw it whenever they need it. It would allow W2 employees with access to that type of plan to more or less turn the federal income tax into a consumption tax.
Yeah, I don’t know why the rest of my post got cut off when it posted, but I just added the exact same point back in. Depending upon what report you want to reference, there are estimates out there that only 50-65% of 401k eligible employees are contributing anything, and even less are contributing enough to get a full company match. I agree that the inability to withdraw a dime for the next 35-45 years without massive penalties is a huge deterrent for some, and if we can throw those people a bone in the form of minor emergency funds, I’m for it
As a residential loan officer many of my clients borrowed for a down payment but we had to prove there were no payback requirements if the debt ratio was too tight. So you don't HAVE to pay it back but of course in the long run it's better if you can.
The rate I paid 6 years ago was only 1.75% which was significantly better than anything I could find from a bank, especially for a personal loan. Just checked now and if I did one today it would be 4.625%. Good luck finding anything close to that at a bank these days.
^^ This. I took out a loan against my 401K and while I am paying interest on the loan (to myself, actually) there were no additional penalties. I kind of hate that I'm missing out on the crazy gains that money would have generated but I was glad to take care of some stuff I needed to get off my plate.
On the one hand, that's a very low rate if you're comparing it to a conventional loan. On the other, assuming for illustration one's 401k is invested in the S&P, that loan "cost" upwards 30% interest this past year with the S&P having 24% returns.
No doubt that bad timing can cost you. You definitely don't want to take out a large portion of your 401K in a loan unless its an emergency for the chance that you could miss a market uptick like we've had this year. But its still a good place to get a smaller amount of money needed for a specific need for a guaranteed low interest rate that you pay to yourself rather than a bank. And there is always the chance you could have some money that misses out on a market downturn.
I'm not surprised. That happens a lot. Your plan really doesn't want the DOL to audit the interest rates they're charging for loans though. Wouldn't be pretty.
True, and at today's prices, I'm not sure what would both constitute an emergency and cost less than $1k. If you can't save at least $1k for an emergency fund, you might be overspending compared to your income. <--I'm specifically not talking about someone who has fallen on hard times, just thinking about people who have their regular job paying regular living expenses.
Exactly, it's a way to get people to start a 401k. Though, is there a good reason for the 10% penalty for early withdrawals? The tax penalty isn't enough?
From what I've read and heard, for you federales it is a very easy process to borrow up to $50k from your TSP.
I’ve always wondered that myself. I mean, it’s clearly a deterrent so that people will keep money in their 401k until retirement age, but the only IRS benefit that I’m aware of that you’re getting is deferred income tax, and that’s eventually going to be paid one way or another whenever you do withdraw. Therefore, I’m honestly not sure how they get away with invoking the additional “pre-retirement” 10% penalty
If anything, I could see company match amounts being excluded from eligible early withdrawal amounts, but aside from that, I don’t know why someone shouldn’t have access to their investments as long as they pay the tax on it.
Penalty....theft....whatever you want to call it....When the income tax was started, it was only supposed to be temporary.....now the govt wants it all....income taxes are counter productive
Fine. But, if there is an income tax (which there is) my question was what makes withdrawing from a 401k different than any other.
Exactly.
Yeah, it was supposed to be temporary but people liked it. The Grange, Farmers Alliance, and the Populists all wanted it.
So Conservatives proposed the 16th amendment to kill the income tax for good— and to their horror it was ratified by three-fourths of the states.
16th Amendment to the U.S. Constitution: Federal Income Tax (1913)
EnlargeDownload Link Citation: The 16th Amendment, March 15, 1913; Ratified Amendments, 1795-1992; General Records of the United States Government; Record Group 11; National Archives. View All Pages in the National Archives Catalog View Transcript Passed by Congress on July 2, 1909, and ratified...
www.archives.gov
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