The Expert Podcast

Over the years, 401K fund balances have become a large percentage of some people's assets and their net worth. But as the economy starts to slow down, there may be a trend towards removing some assets from this class, especially when other types of personal wealth are not quite as liquid. You can't really take money out of your home unless you do a home equity loan, but withdrawals from 401Ks are becoming more common. There is a method of withdrawing from a 401K under hardship, which has some benefits in terms of fewer tax consequences, where a typical cashing-in or just taking money out of your 401K might have serious tax penalties.

Even a hardship withdrawal is going to have some tax consequences. Again, we're not tax accountants or attorneys, so you want to check to make sure that how you're removing money from your 401K is appropriate for you. There's also loans you can take against your 401K. Remember, everything that you do that reduces your 401K effectiveness also hurts your future financial security.

If you take money out of your 401K, number one, you're not going to have as much in the future for retirement. You're also going to miss out on any growth opportunities that happen between now and then. You may also have to pay tax penalties. If you borrow from your 401K, you're going to have interest payments on that loan. However, because inflation and the economy are starting to affect finances more, more people are withdrawing from 401Ks. Vanguard, one of the largest investment companies, says it's very concerning how much is being taken out.

Put comments below: Is this something that you're looking to do? Do you need to pull money out of your 401K, or are you still contributing at the same level that you used to?