By Ida Siegal, Reporter
Nothing in life is free, right? But that 401k sitting in your bank account kind of feels like it sometimes.
Most people don’t even notice the money that gets deducted from their paycheck and entered into an investment account. All of a sudden you get the statement at the end of year or quarterly, and low and behold there’s money! Like magic.
Now that you have this magic money, what to do? Now all the experts will say, “save, save, save!” And, of course, they are right.
Withdrawing your magic money is extremely costly. First you have to pay the 10 percent penalty. Then come tax time, suddenly Uncle Sam figures out you’ve come into money! Fantastic, we’ll take some more of it, thank you. And then of course there’s less money to retire with, and less money from which to accrue interest. By the time you’re done, that $10,000 withdrawal has cost a lot more.
So, fine you lose a lot of money. But aren’t some things worth the loss?
My producer was very interested in this story. She used 401k money to eliminate her credit card debt. She is very proud to say so. She avoided penalties because she took the money out after turning 59 and a half. That’s the age at which you escape penalties, but she still paid taxes on it.
She knows her peace of mind came with a price. But doesn’t everything? She’ll now have less money to retire. But couldn’t the argument be made that choosing to have less money at retirement is the same thing as choosing a career you know will pay less money, but will have other kinds of rewards? I don’t know. What do you think?
