The past year has marked a noticeable rise in U.S. citizens prematurely withdrawing from their retirement savings, as a record 3.6% of the population navigated unexpected costs and attempted to ensure their financial stability.
This increase from rates seen in 2022 is largely attributed to the economic uncertainties and unexpected challenges brought about by the ongoing global pandemic.
Among these individuals are Miechelle Croft and her husband, who resorted to tapping into their 401K savings to help their daughter Jennifer, who found herself out of a job and unable to make ends meet.
However, premature withdrawals from a retirement account can come with considerable financial implications such as income tax and additional penalties, especially for those under 59 years of age.
An alternative approach, presented by Daniel Seder, a managing partner at Blue Chip Partners, is borrowing from one’s 401K account, which could potentially avoid taxes and penalties. He suggests this method might serve to enhance one’s retirement fund as the interest collected contributes to their nest egg, rather than benefitting financial institutions.
Chris Weigel offers testament to this strategy, recounting his own experience of utilizing his 401K to fund his daughter’s dental surgery. This move, he asserts, provides a valuable lifeline when facing sudden expenses and promotes sound financial habits, as borrowers essentially pay back their future self.
Yet, most financial advisors recommend leaving retirement savings untouched whenever possible, advising individuals to consider alternate income sources before dipping into their hard-earned retirement savings.
Ultimately, all decisions regarding retirement savings should be made with the utmost consideration, taking into account financial education, potential penalties and the long-term growth of personal retirement funds.
