One of my biggest beefs with government-controlled retirement plans, such as 401(k)s, IRAs, 403(b)s and Roth Plans, is the total lack of liquidity. The money you’ve socked away in your conventional retirement plan is about as solidly frozen as the iceberg that sank the Titanic! And because of this, if your financial ship hits rough waters, you might end up sinking as well.
Here’s the critical question: How quickly and easily can you get your hands on all the money in your retirement account if you need it before age 59½?
We all know life happens. Cars break down. Roofs need replacing. A tough medical diagnosis can create mountains of unexpected bills to pay.
Every year many participants in employer-sponsored government-controlled retirement plans make early withdrawals for a number of reasons. And every year, the IRS collects penalties related to those early withdrawals.
In fact, in the last year for which statistics are available, the Internal Revenue Service collected $5.7 billion dollars in penalties from Americans who took out $57 billion from their retirement funds before they were supposed to.
Putting Your Money in a Conventional Retirement Plan is Like Putting it in Prison
If you withdraw money early from your government-controlled retirement fund, not only will you have to pay taxes on money you withdraw, you’re going to pay penalties, too.
And remember that if it’s really an emergency and you absolutely must get the money immediately, you’ll get hit with a double whammy. First, you’ll have to sell the very investments you were counting on for growth. And to make matters worse, if markets are down when you sell, you’ll have to bite the bullet and take a loss.
If you’re fortunate enough to have a retirement plan you can borrow from, it might be a good thing. Not all employees have that flexibility.
But even if your plan permits borrowing, there are strict government-imposed limits on how much you can borrow, how long you can borrow it for, and how you must pay back the loan.
And if you lose your job or leave your company for any reason – and you’ve not yet reached the magic age of 59½ – you need to pay your loan back in full and with interest within sixty days. If you don’t, you’ll be forced to pay income taxes on all the money you borrowed plus a 10% penalty.
Wait! Isn’t this your money we’re talking about?
Forget about the potential penalties and taxes for a moment. The New York Times reported that a thirty-five-year-old with a $20,000 plan balance who takes out two loans in fifteen years ends up with about $38,000 less at age sixty-five than someone who never borrows – even if they repay the loans on schedule and without penalty.
Every time you borrow from your 401(k) plan, it will hurt you.
It’s even worse if you default on your loan. None of us plans to default on a loan. Yet at least 75% of workers who have an outstanding loan when they leave their jobs end up defaulting and getting stuck paying penalties and taxes. That is most workers!
Can you borrow from your IRA?
Don’t even think about doing that. If you borrow from your IRA, the value of your entire IRA becomes taxable. Immediately. Even using your IRA as collateral for a loan triggers taxes.
For most of us, the vast majority of our assets (other than our homes) is tied up in our retirement plan. But because of all the restrictions and penalties, you really should consider your government-controlled retirement fund a non-liquid “frozen” asset that you absolutely should not touch until age 59½.
Wouldn’t it feel better to have access to the money in your retirement plan when you have a need?
Would you like to be able to tap funds whenever for whatever you need? Then consider the Bank On Yourself method of saving for retirement. You can access your equity in the plan however and whenever you want.
No early withdrawal penalties or required minimum distributions.
You can access both your principal and gains with no taxes due, under current tax law. (More on that in my next blog post on retirement plan traps.) The only question you’ll be asked is “How much do you want?”
In addition, your money grows safely and predictably every single year by a guaranteed amount – even when the stock market is tumbling.
In fact, we’re so confident that no other retirement planning method can give you all the benefits and advantages of Bank On Yourself that we have a standing offer to pay a $100,000 cash reward to the first person who uses a different strategy that can match or beat it!
Take the $100,000 Challenge here and see for yourself.
Locking Your Money Up in Your Retirement Plan is Just One of 6 Key Pitfalls:
- No guarantees and lots of risk
- High fees that erode the nest egg you’re trying to build
- Unqualified administrators and financial representatives who get paid no matter how poorly they perform
- Government restrictions and employer regulations that leave you with no control over the money in your plan
- No ability to access your money without restrictions and penalties if you need it before retirement
- The ticking time-bomb of deferred taxes
HOW TO GET YOUR RETIREMENT PLAN ASSETS OUT OF PRISON
Discover how the Bank On Yourself method gives you an unbeatable combination of benefits – including safety, liquidity, control, predictability, guarantees and some juicy tax advantages.
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