If you’re experiencing financial challenges, it might be tempting to forego contributions to – or even
withdraw funds from – your retirement accounts. The Financial Industry Regulatory Authority Investor Education Foundation, a BBB partner, offers the following reasons to keep your retirement savings intact:

Tax Liability – Unless you're over the age of 59½, you will have to pay income taxes on the amount you withdraw and be subject to a 10 percent tax penalty. In most cases, your employer will withhold 20 percent in federal taxes, so the amount you receive will be significantly lower than the amount requested.

Opportunity Costs – Repercussions of withdrawing funds from your 401(k) could be enormous in terms of lost growth opportunity. For example, assume you are 30 years old and have a 401(k) balance of $20,000. If you leave that money alone, and your account averages a 6 percent rate of return over the next 32 years,
your balance at age 62 will be $129,068 – even if you do not make additional contributions during that time frame.

Opening Assets to Creditors – Under the Bankruptcy Abuse Protection and Consumer Protection Act of 2005, your creditors cannot touch your 401(k) balance or similar retirement savings account – even if, as a last resort, you file for bankruptcy protection. Balances in traditional and Roth IRAs are also protected up to a
limit of $1 million. But if you take money out of your retirement plan through a loan or a hardship or regular withdrawal, your creditors can go after those funds.

Another warning: Beware products that allow you to withdraw your retirement funds and reinvest them elsewhere. FINRA warns that 72(t) withdrawals from an IRA and 401(k) debit cards can deplete your retirement savings and damage your retirement security.

It’s best to look at other ways to save or borrow: Tightening your belt on expenses, taking advantage of employer-match programs to fund your IRA or 401(k), contributing pre-tax dollars to a retirement plan, etc. You may also be able to borrow from your 401(k) without actually taking a withdrawal; this would reduce your tax burden and would likely come with a lower interest rate than a bank loan. Check with your plan administrator on whether or not this option is available.

For more information on this and other financial topics, check out www.saveandinvest.org.

Start With Trust. For reliable consumer tips and information, visit wynco.bbb.org or call 970-484-1348 or  800-564-0371.

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