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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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401k investment plans are an excellent for the average person to get a decent return for their retirement plan. But there are some things you can do to get even more out of your 401k plan, they include:

1. Make the Maximum Contribution

401k plans have a maximum amount that you can invest in it every year. If you have the ability to make the 401K maximum contribution you would be taking a step in the right direction.

Of course it is not easy to make such a large deposit in your 401k every year. After all there are bills to pay and you do not have unlimited income. But if you take the time to invest as much as you possibly can into your retirement plan you will not regret it later on in life.

One thing you can do to help you with this is to make a list of all of your expenses. This way you can figure out where your money is going and learn how to better save some of it for your future.

2. Don’t Make an Early Withdraw

Every time you are investing into a retirement account you are saving for the future, many years down the road. Taking out an early withdraw will turn around and hurt you in the long term by forcing you to lose the potential gains that you could have made off that money.

For instance, if you take out $10,000 that could have very well cost you $30,000 or more in future profits. Think about that next time you decide to buy a new car, it is really worth so much?

Another disadvantage of making a premature 401k withdrawal is that you are going to be slapped with all kinds of penalties and taxes. If you take money out before you are 59 ½ you will be slapped with a 10% penalty and then have to pay taxes on it.

A 401k is really for the long term. It is meant to be something that will help support you after you retire, not something that should be used every time you want a new car. Of course there may be times when you simply need to take out money due to a loss of a job, or another disaster.

In that case you can always try to take out the bare minimum you would need to get by.

3. Get a Self Directed 401K

When you get a self directed 401k plan you get to manage the account and make the best investment decisions. After all no one cares about your money like you do.

It will also help you to save on paying extra management fees, which can help your account, grow faster. I believe that the average person can learn to make a better return than any mutual fund will give you. Of course you are taking on a greater risk by doing it yourself, but the potential is also a lot higher.

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