401k – what not to do

Take my advice: DO NOT cash out your 401k!! Here’s why.

Just before I got married, I cashed out 1/2 of my 401k from a previous employer. I thought, “We need to be able to pay for the caterer, the florist, the band and the photographer. Not to mention the honeymoon!” We didn’t have cash saved for all of that, but I saw the nest egg had plenty.

Upon cashing out the funds, I was taxed (at 20%), I was penalized (another 10%) and I had to claim that money as income on the next year’s taxes. Let’s just say it was a hard time to learn a 30% lesson of loss. Keep the money in the account, and DO NOT touch it until you reach of age where it is appropriate to take distributions.

Published by MadsenFinancialCoaching

Madsen Financial Coaching was created to bring awareness to personal finance. When you pay attention, you win! We work with clients to understand their behavior and relationship with money, as well as basics of personal finance such as: following a budget, eliminating debt and building an emergency fund to name a few. We want you to succeed, and it starts with your willingness to put in the work.

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