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Robert A. Imparato, Jr CFP®
CERTIFIED FINANCIAL PLANNER™ professional
Craig A. Hyldahl CFP®
CERTIFIED FINANCIAL PLANNER™ professional
R.I.C.H. Planning Group, LLC
105 Fieldcrest Avenue, Suite #507
Edison, NJ 08837
Robert: 732-326-5240
Craig: 732-326-5240
Fax: 732-326-5331
Robert: robert@richplanninggroup.com
Craig: craig@richplanninggroup.com
Website: www.richplanninggroup.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 You might think this isn’t a big sum, but look what would happen if instead the amount withdrawn earned 6% annually, compounded daily, for 30 years.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.
GE-2572772 (06/19)(exp.06/21)
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Securities offered through Equitable Advisors, LLC (NY,NY (212) 314-4600), member FINRA,SIPC (Equitable Financial Advisors in MI & TN). Investment advisory products and services offered through Equitable Advisors, LLC, an SEC-registered investment advisor. Annuity and insurance products offered through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC; in Utah as Equitable Network Insurance Agency of Utah, LLC; and in PR as Equitable Network of Puerto Rico, Inc. Equitable Advisors and Equitable Network are affiliated companies and do not provide tax or legal advice.
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GE-4833845.1 (7/22)(Exp. 7/24)
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