• Don’t borrow from your retirement plan or permanently withdraw funds before retirement unless absolutely necessary. Use a credit card or borrow money for unexpected expenses if they come up but do not withdraw money from your retirement plan early.
• Your retirement plan may allow you to borrow from your account, often at very attractive rates. However, borrowing reduces the accounts earnings, leaving you with a smaller nest egg. Also, if you fail to pay back the loan, you could end up paying income taxes and penalties. As an alternative, consider budgeting to save the needed money or pursue other
affordable loan options.
• Also avoid permanently withdrawing funds before retirement. This often happens when people change jobs. According to a study by the Employee Benefits Research Institute, 47 percent of workers changing jobs rolled over into an IRA or a new employer’s retirement plan at least some of the money they received from their former employer’s
retirement plan.
• Pre-retirement withdrawals reduce the ultimate size of your nest egg. In addition, you’ll probably pay federal income taxes on the amount you withdraw (10 percent to as high as 35 percent) and a 10 percent penalty may be tacked on if you’re younger than age 591/2. In addition, you may have to pay state taxes. If you’re in a SIMPLE IRA plan, that early withdrawal penalty climbs to 25 percent if you take out money during the first 2 years you’re in the plan.
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