One in four adults under 35 with a 401(k) has already made an early withdrawal. The reason? Largely, their credit-card debt
One in four adults under 35 with a 401 has already made an early withdrawal, according to a survey of 2,700 adults released Thursday by financial institution Merrill Lynch and aging think tank Age Wave. The most common reason they cite for taking the early withdrawal: to pay credit card debt.
Probably the biggest one: The cost. Tap your account before age 59 ½ and you’re likely to have to pay a 10% penalty and income tax on that withdrawal. has different rules.) And now that your money isn’t in your 401, you’re not enjoying the power of compounding, he adds. And it’s likely even more costly than that because you’re probably not contributing to your 401 after a withdrawal, so you’re losing out on the match from your company, which is free money. “The match overwhelms the interest rate you’re paying on the debt,” says Surya Kolluri, Bank of America’s managing director of the retirement and personal wealth solutions office of thought leadership.
And if you do it, you have to be prepared to change your ways, he adds: “Are you going to live below your means? If you can develop a plan for spending and saving money and it is a doable, plausible plan, the use of a 401 withdrawal or loan may be OK.”
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