As tax rates hit historical lows, Doug provides some historical context on the 401k and asks if now is the time to retire your 401k and put your savings elsewhere.
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When it comes to retirement planning, many people rely on their 401k accounts to fund their golden years. However, there may come a time when you need to cash out your 401k, and it’s important to understand whether this is the right decision for you.
First and foremost, it’s important to note that there are penalties for withdrawing money from your 401k before age 59 1/2. You’ll typically face a 10% penalty on the amount withdrawn, on top of income taxes you’ll owe on the money. This can make it a costly decision to cash out your 401k early.
However, there are situations where it may be worth the penalty. For example, if you’re facing a financial emergency and have no other source of funds, tapping into your 401k may be necessary. Additionally, if you’re facing a large tax bill and have no other way to pay it, cashing out your 401k can help cover the cost.
Another reason to cash out your 401k may be if you’re nearing retirement age or have already retired. In this case, you can begin taking withdrawals from your account without penalty. However, it’s important to carefully consider how much you need and how much you can afford to withdraw each year. You don’t want to run out of money too soon!
Finally, some people may choose to cash out their 401k to pay off high-interest debt, such as credit card balances. While this may seem like a good idea, it’s important to look at the bigger picture. If you’re racking up debt faster than you can pay it off, cashing out your 401k won’t solve the underlying problem. Instead, you’ll need to work on improving your finances and reducing your debt load.
In conclusion, there are situations where it may make sense to cash out your 401k, but it’s important to carefully weigh the pros and cons before making a decision. Be sure to consult with a financial advisor or tax professional to ensure you’re making the best choice for your specific circumstances.
Sounds good, but you need to run the numbers. Example a 20 year old in the highest tax bracket puts 10,000 in a 401k type account vs an after tax brokerage account so after tax 6300 dollars. Assume 10% growth. Retirement age is 65 so 35 years of growth. First one gives 330k, second gives 208k. I know what sum I would like if we were in a higher tax environment.
I’m 59.5 I wanna take all my money to buy a house. No penalty but how much will they take out? Is it 10% or 20%
i agree with what you said, but getting the money out is not possible until 59 12. unless you leave your company than its 55. still have to pay taxes on it. and that will depend on what tax bracket your in. i would be in the 22% bracket as long as i didn't take or make 172k in that year. but, that is my plan at time i can. pour it into a roth IRA. some would say , you can take it and pay 10% penitaly . i wouldn't want to lose that money. some say its 30% its not , 20% is held for taxes.
so, I'm 58 years old and want to withdraw $150000 to pay off my mortgage and also $35000 to pay off a loan I have with the 401k. This will leave me with $28000 /year, since I will not be paying mortgage or the loan, to invest in real state or something else. What do you think about that?
I want to do this but the tax i would have to pay are crazy Still might do it but it hurts
""People who were making high levels of money were having to pay 70 cents on every dollar of income they received." This is not correct. As is the case today, the US had a graduated tax rate in 1978.
What he doesn't say is if you're under 59 1/2 you'll paying penalties in addition to the tax should you withdraw the money. You will also be giving up your company's match if you have one. Also you normally can't take your 401(k) until you leave the sponsoring employer. His advice makes little sense for middle class people.
Can I take my 401 k before I complete 1y on the new company ?
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Great video!
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