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Taking cash from your 401k plan can come with some major side effects. All of us may want to take a little money from our 401k plan in to buy the newest toy , but if you do it can be extremely harmful to your retirement.

One of the worst things about getting out some money early is that you will be hit with not only taxes, but an early withdrawal penalty as well. So if you are paying 28% in taxes and also have to pay the 10% penalty you will be forced to pay 38% in bills from taking it out before you retire.

Over 1/3 of the money that you would take from your account would then go to taxes and penalties. That means in order to get as much money as you need to buy something you would have to get out more. Instead of just having to take out $1,000 you may have to take out over $1,600 to be able to to pay for all or those penalties and have the buy the things you want.

The 401k withdrawal rules can be hard on an investor if you want to take out money early. But this is not the only disadvantage. No, in fact there is one big disadvantage that is often overlooked by most people.

The money that you take out today could have grown and earned interest for the future. If you get out $2,000 today that does not mean that is $2,000 that you will not have in the future. When you add things such as interest then you realize just how much it really does hurt to take an premature withdraw.

Let’s take a look at an example to see just what I mean. If you have $2,000 in a 401k plan and it will be in there for 30 years growing at an average of 8% a year after the 30 years you would have $20,125. So if you get out $2,000 now that means it is $20,125 you would not have during your retirement. It makes it a harder to get money out of your retirement account just to buy a fancy new car doesn’t it?

Of course if you do need the money because of a terrible situation such as a lost job or have been through another bad incident then grabbing into your 401k plan could be your only option. Before you do, make sure that you have looked at every other option for getting some extra money.

You may also want to check to see if you do qualify for a 401k hardship withdraw which can allow you to take out a 401k withdraw while at the same time not being forced to pay the 10% penalty. This could help you to get out less money and still pay off your bills.

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