Skip to main content

Has anyone ever taken an early 401(k) withdrawal (or an early withdrawal from any retirement account)? This is often viewed as a cardinal sin in personal finance, but this is a judgment-free space. I ask mainly because I'm wondering if you regret it now, or If you think it was the right choice.

I recently answered a letter from a 29-year-old woman who has over $100K of student loan debt and $55K in her 401(k). She asked if she should use the 401(k) money to pay down her debt because it's causing her so much anxiety. She pointed out that she still has at least 30 years to save and invest.

I said no for all the typical reasons: the lost earnings and compounding time, the taxes, the penalties, etc. But I still go back and forth on this a bit, mainly because the debt is causing the letter writer so much anxiety. Sometimes, the reaction to any mention of an early 401(k) withdrawal is so knee-jerk in personal finance. But I don't think it's always so black and white. Saving for your retirement is essential, of course, but it can be difficult to prioritize your needs 30 or 40 years from now when you're living paycheck to paycheck.

If you've taken an early 401(k) withdrawal, do you have regrets? No regrets? Or is withdrawing retirement money early a hands-down no for you?

Robin Hartill aka Dear Penny is a certified financial planner and a senior writer at The Penny Hoarder.

Original Post

Replies sorted oldest to newest

I did it over 25 years ago, only because I was unemployed. Did I regret it, nope. Good for you for telling her not to take money from her 401K, The penalties and taxes would hit her hard, and she would wish she had never done it, As for the naysayers, I don't listen to them, because it depends on the situation at hand such as mine. She works, and seems to have a good-paying job too, she should just continue her monthly payments, pay a little more than what is due, and pay before it is due, as for her mentioning she has 30 years to go before withdrawing her investments, One does not have an expiration date on their body (wish I had one) to be able to think that they'll be around in 30 years.

Not knowing what her monthly take-home or her total monthly bills I can not give out any more advice other than to cut back on the unnecessary things, get a lower cell plan, skip eating out, skip the coffee shops, skip bars/clubs, get rid of cable, Hula, NetFlix, and the like, etc, there are a lot of good tv-shows when using just wifi. 

I also cashed out a small 401k once due to job loss. My former employer didn't want to pay me unemployment. I won, but it took 7 weeks to get my first unemployment check. The small amount I received for cashing in my 401k made a big difference. And it was quite small potatoes compared to my other 401k accounts. No regrets.

I have never drawn from my 401K, but I have taken three different loans from my account (Harley, GMC Truck, Retirement home). Not all 401K's allow for you to take loans. My wife was forced to draw her account early; due to losing her job and the ability to walk from a botched hip replacement. Two years with no income will make you to make some tough choices. I left my job after twenty years due to a dispute with my manager and I have not returned to regular work due to my own health issues. My homes, cars, and motorcycles are all paid off and my wife are able to get by on her pension. I pick up odd jobs to cover larger expenses. Jobs like U S Census, election judge, and working in a haunted house. I still have three and a half years before I can get Social Security, My 401k is our parachute, and we don't want to pull the string too soon!

Add Reply


Related Content

Link copied to your clipboard.