WEAU | Eau Claire, Wisconsin | News

More people tap into their 401(K) funds early

By: Olga Michail Email
By: Olga Michail Email

EAU CLAIRE, Wis. (WEAU) -- Financial analysts say more and more people are taking money out of their retirement ahead of time just to make ends meet.
Analyst say one in four people are taking money out of their 401(K) early. It’s because of high unemployment, loads of debt, and constant struggles to make ends meet. The problem is lots of those folks don't know that tapping into their 401(K) can come at a higher price than they'd like to pay.

"I think 401(K) is confusing. There is so many different kinds. I know that they are penalties, but I can't even honestly say that I know exactly what happens,” said Jessi Irwin, a mother of two boys.

Many people don’t realize how pricey dipping into your 401(K) early can be.

"When it's all said and done a person could be looking at anywhere from 25 percent to upwards to 50 percent in total tax penalties by the time they get that money out,” said financial advisor with the Ameriprise Finance, Adam Mohr.
The problem is-staying in debt is a rough alternative.

“There is a lot of anxiety that goes with not having an income and having a lot of debt out there, in that case it might be a good psychological thing to do,” said Mohr.

“I think you have to do what you need to do. You have to pay your bills, you have to feed your kids, you have to buy medicine, roof over your head; whatever resources you have available, you have to access those,” said Irwin.
“If there are better alternatives out there, whether it'd be getting creative with some sort of re-financing, relying more on your spouse’s income, or taping into some emergency funds: that might a be a great option,” said Mohr.

Mohr also says if the trend continues, he sees it as a “national epidemic” that could really hurt the economy.

"In the future if this trend continuing and people have to dip in into their retirement accounts; employers will be less incentive to offer a match, knowing that they are throwing good money after bad money. Government programs would be utilized more often, because people didn’t take the responsibility when they were younger to make the good choices, therefore not having the capital that they need when they actually get to retirement,” said Mohr.

If you feel like you need your 401(K) money now, Mohr suggests talking to a professional first. He also urges people to consider the "opportunity cost"-meaning thinking about how much more you could make if the money stayed in your account for the next 20 to 30 years instead.


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