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Tom Meaglia, ChFC®, AEP®,
CLU®, CRPC®, MSFS
Chartered Financial Consultant
Investment Advisor Representative
Chartered Retirement Planning Counselor
CA Insurance Lic. #0567507
Meaglia Financial Consulting
2105 Foothill Blvd., #B140, La Verne, CA 91750
Toll Free: 800-386-3700
Bus: 909-593-6105
Cell: 818-681-8600
Fax: 909-593-6120
Email: tom@meagliafinancialconsulting.com
Website: www.meagliafinancialconsulting.com
With the holidays coming soon, it may be hard to resist the temptation to take a retirement plan loan or an outright distribution from your company 401(k) plan to pay for your holiday shopping. Here's why you shouldn't:
Disincentives
The most obvious disincentive to taking an outright distribution from your qualified retirement plan is the tax penalty if you are under a certain age. That’s 10% on the amount you withdraw, not counting ordinary income tax that would be due on the amount. Exceptions to the tax penalty rule include distributions taken for qualified first-home, higher education and medical expenses, or for any reason by account owners at least age 59 1/2. You’ll notice holiday shopping is not one of the exceptions.
Another reason not to take an outright distribution is it will cost you much more than the amount you withdraw, even beyond current taxes and the penalty.
For example, let’s say you take only $2,000 from your account. You might think this isn’t a big sum, but look what would happen if instead the amount withdrawn earned 6% annually, compounded daily, for 30 years. After 30 years, that $2,000 would have grown to more than $12,000! That’s six times the amount you thought you wouldn’t miss.
You will also miss potential earnings growth of the outstanding loan amount, while you will likely have to begin payments immediately, lowering your take-home pay. One last note: If you leave your job, the balance of the loan will become due almost immediately. If your plan uses funds in your retirement account to pay off the loan, you may owe a penalty and taxes on that amount.
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Investment advisory services are offered through Fusion Capital Management, an SEC Registered Investment Advisor. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration is not an endorsement of the firm by the commission and does not mean that the advisor has attained a specific level of skill or ability. All investment strategies have the potential for profit or loss.
Meaglia Financial Consulting and LTM Marketing Specialists LLC are unrelated companies. This publication was prepared for the publication’s provider by LTM Client Marketing, an unrelated third party. Articles are not written or produced by the named representative.
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