Mass layoffs have been happening, especially in tech companies, and it seems like the worst is not over yet.

Watch this video as Lane talks about what you can do about your finances once you get fired from your job and why you need to cash out your 401k/ IRA.

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LEARN MORE ABOUT: 401k Plans

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Losing your job can be a devastating experience, especially if it happens unexpectedly. Not only does it leave you feeling uncertain about your future, but it also creates financial instability. However, if you’ve been diligently contributing to a 401k or IRA, you may have a source of financial support that can help you through this tough time.

When you are fired from your job, you may be tempted to cash out your 401k or IRA to help cover your living expenses and bills. While this can provide a quick fix to your immediate financial needs, it’s important to consider the long-term consequences of this decision.

Cashing out your 401k or IRA can have serious financial implications. Firstly, you will be hit with early withdrawal penalties which can range from 10-25% of your total balance, depending on your age and the type of retirement account you have. Additionally, you will have to pay income tax on the amount you withdraw, further reducing the amount you receive. In the end, you could end up losing a significant portion of your retirement savings to penalties and taxes.

Furthermore, by cashing out your 401k or IRA, you lose out on the potential for your money to grow over time. Retirement accounts are designed to grow tax-deferred, meaning you can benefit from compound interest and investment returns. By withdrawing your funds early, you miss out on the opportunity for your savings to continue growing until you reach retirement age.

So, what are your options if you find yourself in this situation? One alternative to cashing out your retirement savings is to roll your 401k into an IRA. This allows you to continue growing your money in a tax-advantaged account without facing early withdrawal penalties. You can also explore taking a 401k loan, which allows you to borrow up to 50% of your vested balance (up to $50,000) for up to five years. While you will have to pay back the loan with interest, it can provide you with the financial support you need without sacrificing your retirement savings.

In some cases, you may also be eligible to rollover your 401k into your new employer’s retirement plan if you find another job. This can allow you to keep your retirement savings intact and continue contributing to it in the future.

Ultimately, the decision to cash out your 401k or IRA should not be taken lightly. It’s important to consider all of your options and weigh the long-term consequences of your decision. Before making any decisions regarding your retirement savings, it’s advisable to consult with a financial advisor or tax professional to fully understand the implications and explore the best options for your individual circumstances.