Broadband Tech > General Questions > Dipping into retirement at a very early age?

Dipping into retirement at a very early age?

I think you know exactly what is what, and should do whatever you decide is best for you. Time is on your side, but it speeds up as you age. So, beware.
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»anatheists.blogspot.com/

reply to that1guy
Check the tax situation. You may find that you get whacked with a big penalty for withdrawing it now.

reply to that1guy
you have the advantage that you are young and have a long time till you retire. you most likely can take a loan of a certain percentage of the vested amount of your retirement account. is this a 401k? typically you can borrow about 50% from a 401k. but only from the vested portion. since you're young i'm going to assume you don't know what vested means. if you do i'm sorry, just skip ahead a little bit. whatever you contribute is your money. whatever your employer contributes isn't always your money. some companies allow you to be immediately vested. meaning whatever they add is yours right away. most companies require you to work there for a minimum number of years before you become vested. so if for instance you need to work there for 5 years to become vested and you quit after 4 years, everything the company contributed they take back.

so a 401k loan might be the right answer in your case. generally its a bad idea to borrow against your 401k, but as said, you are young and have a lot of time to save. most people your age haven't even started saving for retirement so you're one step ahead already. when you take a 401k loan you have to pay it back with interest. the good thing is you are paying yourself the interest. the payments will come directly out of your paycheck and will be separate from your 401k contribution, so you may need to adjust your contribution rate down till you have the loan repaid.

if it's not a 401k then i just wasted a lot of typing!

one important thing to remember as you get older is that it is ok for a room in a house to be empty for a while. i know it's exciting to buy a new house and when a room is empty you want to fill it right away. but buying so much furniture (or anything really) on credit to the point that it will take years to repay is not a good idea. even if you manage to stay current on all payments and keep your credit score up, you're still paying a lot of money in interest. try to remember in the future that if you don't have the money to pay for it right now then it can most likely wait. if you can get special financing terms just as no interest for 12 months then by all means take advantage of it. just make sure you can pay it in full before the 12 months is up. otherwise pass up on the deal.

if you're 21 and are current on your credit cards and own a home that you make on time mortage payments for then you are headed down the right path credit wise. don't fuck it up like most people do! credit cards are ok to use. i put everything on a credit card. but only charge what you can pay in full every month. some people don't have the discipline for this so if you don't think you can do it then don't try. but if you can restrain yourself from maxing out the cards then the rewards are worth it. many people get money back cards. i go with airline miles cards because i travel frequently. look for a rewards card that best suits you.

that's enough advice for the young ones from me for one day! got a little off topic there.

reply to that1guy
Why not just carry a balance for a while on the cards?
A record of on time payments is good for the credit score. Just don't get behind.

I'd leave the retirement fund alone. Compound interest is a wonderful thing.
Just make the CC payments. If you can pay more then the minimum payment, do so.

Sure right now 21 looks to be on the long end of the stick for retirement. But what happens if you get in an accident, tomorrow and can't work?
Granted that 10k won't help much, but...

It's your money/life, do as you will.
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Is a person a failure for doing nothing? Or is he a failure for trying, and not succeeding at what he is attempting to do? What did you fail at today?.

reply to that1guy
Here in Canada you can borrow from your RRSP but only for buying a house or paying for education, otherwise if you take out money you pay tax on it (and also lose that contribution space forever).

You may have to weigh the penalties of withdrawing retirement funds against the costs of carrying that credit card debt.

reply to that1guy
I have a similar question that I don't think really warrants another topic though if mods feel it does by all means don't let me stop you

The company I work for offered an IRA or 401k, not sure which it was. They haven't done anything with it in about 4-5 years and neither have I. I don't have free funds to put into it at the moment (the fact my cell phone has been off for about a month is proof of that).

Around the time the company stopped putting money into it (100% match I think it was) we got notices in the mail that they were now going to start charging money for "maintenance fees" or something like that on accounts below a certain threshold. I have all the info somewhere I just don't remember it now.

Anyway, long story short I let them sit on it. I moved to Tucson in 2008 and moved back to Atlanta in 2010. Around the first of the year I get mail from the retirement company stating they were looking for me and were about to turn the account over to the state as lost money. Why they never had my address before and how they magically got it now I don't know. I'd given up on it as being eaten up by fees already. Naturally I sent in the form to "claim" it.

So apparently there is money left, I have no idea how much yet. There was maybe a couple thousand in there last I saw a statement. I know there will be penalties and fees and tax implications in liquidating the account. Assuming they don't have an option for me that doesn't involve fees (including transferring it to another vendor) should I take what I can out of it and get what little money is left or just let them continue to eat it up with fees? There's no telling when I'll be able to contribute anymore to it as my searches for another/supplemental job have been less than successful.

reply to that1guy
At the very least take it out of that account in roll it over into a IRA at your bank. They won't charge you any fees for it and you won't have to pay taxes on the rollover.

reply to that1guy
There are a few reasons that this is a bad idea...

First - Uncle Sam will want the income taxes due on the withdrawn amount PLUS the 10% penalty for taking the money out early. You either have to come up with this money from other means OR withdraw even more, to cover the taxes (and the extra withdrawal to cover the taxes raises the amount of taxes and penalties due!)

Second -The amount you take out will be ADDED to your taxable income for the year and could bump you into a higher income tax bracket. Oops! This means you now owe even MORE tax than you anticipated. Where will that money come from?

Third - If you live in a state with income taxes, then you get to pay income tax on the withdrawal to them also. (Again, that money has to come from somewhere. Either from your bank account or from your retirement account)

Depending on your income level and your state tax situation you can easily watch 30+ percent of your withdrawn amount go straight to the government.

Leave the money in the retirement account. Also do some reading about "The time value of money". If you leave your money alone it will have around 45 years to grow before you reach retirement age. Compound interest becomes VERY interesting over that kind of time frame. The extra years now will be quite valuable to you then.

reply to that1guy
First mistake was spending money you did not have. When you bought the home you did not think you'd need furniture? You could not live with $5000 in furniture?

Second mistake... it IS your money. You worked for it and earned it. If you spend it, you are spending YOUR money.

Third mistake... you can only take money out of an IRA (??) for certain reasons. I'm no expert but you can check online for this. If you can take it out, you will pay taxes on it and also a 10% penalty! What is the interest rate on your finance charges?

Go back to mistake #1 and don't dig a deeper hole. Buckle down and pay off they money in 1 year. If you need to stop going out to eat, do so. If you need to eat noddles for months, do so.

That $5000 will turn into something like $100,000 by the time you retire. Do you really want to spend $100,000 paying off $5000 in furniture?

Life lesson learned... you need to manage your money just a little better. I have no doubt based on your post that you are doing a good job... just don't compound the minor mishaps at this time.

Note: I had $10,000 in a retire plan when when I started working. I took it out as I lost my job. I really did not have a choice as I owned a home and did not want to loose it. I still regret having to do that.

reply to that1guy

reply to that1guy
Don't do it and don't try to justify doing it. You apparently have a good retirement system so don't screw it up and don't think of it as your bank.
Some plans will not allow employer contribution withdrawal until you are vested. At 21 you are not vested yet. Even if you could take their contributions our you will have to pay taxes on the withdrawal amount because taxes are not paid on their contributions.
Suck it up and budget payments on the CC.
I retired at 55, 10 years ago, because I had a good plan and left it alone.

reply to that1guy
My advice is NO!
UNEQUIVOCALLY, NO!!!

Leave it alone, pretend it isn't there!!
Middle-age will creep up on you, and "Retirement" age is just a breath away!

Tax & penalties will amount to around 30%. It's just not good judgement to delve into it now.
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Come fold for a cure with us @ Team Helix.

reply to that1guy
As you are 21 years old, I think it's too early you are thinking about this.

reply to that1guy
Considering the amount - leave it alone. When I left my very first employer, I had about $2,000 saved up in their retirement plan. I cashed it out and came away with about $1,200. Don't miss it at all.

As someone else said, carry a balance for just a short time. At your age a record of good on-time payments is great for your credit history. Just don't let that short time turn into a long time.

Also, for everyone on this thread, I cannot recommend enough Smart401k.com. You take a survey on your risk tolerance and the figure out what your company's 401k options are and they come up with a plan for you to invest.

I do not work for them. I am a customer. I've been putting tons of money away in my 401k (15% or more since 1997!) and never really saw it grow that much. Until a couple of years ago when I signed up. Holy-e-cow have I gotten good returns. Even when the market was sour, I would still break even or lose just a percent or two.

reply to that1guy
As others have said I wouldn't touch the retirement fund at all. I give you kudos for being 21 and being able to buy your own home, took me till I was 26. But you shouldn't have "pulled out the credit card" to buy a houseful of furniture if you knew you couldn't pay it off in a reasonable amount of time. I furnished most of my house by going to estate sales and such, saved big time and it was practically brand new stuff.

Can you get a part time job somewhere working evenings? Put that money towards your credit card bill. Or budget more of your regular income to the credit card bill, cut back on some on entertainment stuff for awhile.
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"When the power of love overcomes the love of power, the world will know peace."
-Jimi Hendrix

reply to HarryH3

reply to tcope

Trust me... even on unemployment (in my case) you still pay taxes... and nice chunk of change it is.

In my mind I know I needed to do it but it sting every time I think about it.

reply to that1guy
As others have likely said make sure you are still allowed to contribute while paying off the loan.

I am 48 and I am getting ready to take a loan on mine for adding a room addition for my MIL.

Fortunately for me they require that it be payed back in 60 months so I am forced to get it taken care of sooner rather than later.

Also, I am allowed to continue making contributions while I repay the loan.

I agree with what some have said in that borrowing from your future is best done at an earlier age.

In my case I have no choice as the bank is only going to give us half of what we need.

It sounds like you have a good head on your shoulders.

Good luck.

Dave