In this installment of our Retirement 101 blog series, we’ll discuss why it’s so important to keep your 401(k) invested.
Your 401(k) or other type of retirement plan generally offers the benefit of tax deferral—meaning you don’t pay taxes on this income or the growth you achieve until you withdraw the assets.
While there may be events that cause you to consider liquidating your retirement fund, this can be extremely destructive to your plan, so prudence is advised.
• First of all, you will have to pay taxes on all the contributions you made
• You will likely have to pay a penalties for early withdrawal
• You will lose investment momentum and the benefits of compounding—and more
Additionally, before you consider cashing out your retirement plan, remember that you can borrow money for college, a home and other items, but not for your retirement. We understand, however, that your life—and needs—may change over time, so here are a few strategies that may help you stay invested, so you can keep your money working for you for the long term.
Changing jobs
While you can likely keep your money invested in your current 401(k), this may not always be the best idea. Depending on the size of the plan, former employees may not be able to benefit from all the features of the plan, including changing allocations, taking out loans or many other options.