Accessing your retirement funds comes with different rules, depending on whether it’s a 401(k) or an IRA.Based on your company’s rules, you can often borrow up to ,000 (or half your vested balance) from a 401(k) and repay it within five years —unless you leave the company sooner, in which case you have 60 days to repay or face tax consequences and possible penalties. The money you receive is an actual withdrawal, albeit a temporary one: You have only 60 days to re-deposit it, either into the same IRA or put a new one before it is considered a permanent withdrawal, with tax and potential penalty consequences.The reason: You have already paid taxes on the money you deposited.Roth IRAs take after-tax contributions (you didn’t get a tax deduction on the money).You won’t have a choice: the administrator will deduct it automatically from your check.And if you thought paying 10% on a mere withdrawal hurt, imagine the crack it’ll make in your entire nest egg. Because your 401(k) was funded with pre-income tax dollars, you’ll get hit with a tax bill in the year you take possession of those funds.
While 3,000 for retirement is nothing to sneeze at, taking that ,000 early cost you approximately ,000 in future earnings from compounding interest.An early withdrawal can help you escape from having to borrow the money needed for these items.Borrowing from a financial institution can subject you to high interest rates.The issue is, when can you withdraw earnings without paying the 10% early withdrawal penalty mandated by the IRS? All the same, the benefit of being able to withdraw your contributions without penalties or tax repercussions is a great benefit provided only to Roth IRA investors.The cons of withdrawing money are common to all retirement accounts, but with different wrinkles depending on the laws and regulations that govern them.You can escape both the tax and the penalty if the account is at least five years old 59½ or meet a few other specifications (being disabled is one).