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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

November/December 2019

Watch Those Withdrawals

vector keypad of an automated teller machine

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 You might think this isn’t a big sum, but look what would happen if instead the amount withdrawn earned 6% annually, compounded daily, for 30 years.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.


Plan Loans
If your only choice is between a retirement plan loan or an outright distribution and you absolutely need the money, choose the loan. Although it is a better choice, a loan comes with its own drawbacks. One is that no matter how low the interest rate is – and it will likely be lower than other alternatives – it will still be higher than 0%. This means your $2,000 loan will cost you more than $2,000 over time.


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.


Spend Wisely
Armed with information about the pitfalls of taking money from your retirement plan, you might take another look at your holiday budget before you begin spending. Don’t make saving for retirement a casualty of holiday spending.


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Thomas Meaglia is an Investment Adviser Representative of Coppell Advisory Solutions LLC, dba, Fusion Capital Management, a registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
Insurance and annuity products are not sold through Fusion Capital Management. Fusion does not endorse any annuity or insurance product, nor does it guarantee any insurance or annuity performance. Annuity and life insurance guarantees are subject to the claims-paying ability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain time after investing, the insurance company may assess a surrender charge. Withdrawals may be subject to tax penalties and income taxes. Persons selling annuities and other insurance products receive compensation for these transactions. These commissions are separate and distinct from Fusion's investment advisory fees.
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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