ST Alpha - "It's crazy to cash out a 401(k) before you retire, because then you get hit with an assload of taxes and penalties" (Reading a Post)

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In response to "401s are like some magical wonderland where there never seems to be a good reason to withdraw your investment no matter what the market conditions." by Loyola

It's crazy to cash out a 401(k) before you retire, because then you get hit with an assload of taxes and penalties

Posted by Mr. Havens (aka EdwardHavens) Nov 13 '08, 09:47

Half of the point of having a 401(k) is to lower your tax liability when you are earning money

Responses:

Yeah come on Havens, surely you would come out of it financially ahead cashing in in August, suffer the penalties and avoid a large share of the crash -- nm - Loyola Nov 13, 09:49 14
- you wouldn't even need to cash it out, just move it into more stable cash- and bond-based funds - znufrii Nov 13, 09:54 3
  - Which I don't want to do. I want to be able to put away several thousand dollars a year in a relatively safe and secure place - Mr. Havens Nov 13, 10:07 2
    - nor I. If anything, for me, now is the time to increase my risk profile. -- nm - znufrii Nov 13, 10:09 1
      - i've actually been putting a few hundred dollars a paycheck into my RSP account the last 6 weeks or so. - Andie - 41 shopping days till X-mas Nov 13, 10:11
- No, because I was not retiring in August. I'm not concerned with short-term gains or loses -- nm - Mr. Havens Nov 13, 09:50 9
  - It does seem like a vehicle to allow ordinary Americans put away their cash and enact such early withdrawl penalties so as to make any application of - Loyola Nov 13, 09:56 8
    - I think you are thinking a 401(k) is one thing, when it's something completely different - Mr. Havens Nov 13, 10:01
    - You're not tied to the sinking ship here even without invoking the penalties. - Will Hunting Nov 13, 09:58 2
      - Ok thanks. -- nm - Loyola Nov 13, 10:02 1
        
        he's, like, the 8th person who has said that to you. -- nm - Andie - 41 shopping days till X-mas Nov 13, 10:05
    - it's a mechanism to encourage people to be able to save for their own retirement, and thus be less of a burden on the government or corporate pensions -- nm - znufrii Nov 13, 09:57 2
      - Just to promote critical thinking, do you think the US government created this scheme out of concern for your financial well being when you reach - Loyola Nov 13, 09:59 1
        
        why do you think it's a scheme? (i know here, in Canada, anything i contribute to my RSP (same sort of thing) i don't pay tax on in that year. - Andie - 41 shopping days till X-mas Nov 13, 10:01
    - you do realize this is only for retirement plans? no-one is saying that about other investments? -- nm - Andie - 41 shopping days till X-mas Nov 13, 09:57

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It's crazy to cash out a 401(k) before you retire, because then you get hit with an assload of taxes and penalties

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