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The Cost of Dipping Into a Retirement Account

More people are taking loans from their retirement accounts—(401(k), 403(b) or what have you—than ever, simply because they can. Here’s the problem: Seeing one’s retirement account as a savings account or worse, a personal ATM machine. That’s so ridiculous I cannot even tell you. Sure it’s your money, but it’s not your money now. It’s for later. It is out of your reach, so you need to get it out of your mind.

Borrowing from the nest egg, from retirement savings

 

Pre-tax dollars

The beauty of an IRS-approved retirement account is that you get to save pre-tax dollars. It’s no secret that what you see in your paycheck is not the full amount you earned.

In fact, the amount in your paycheck is shrinking and many of our elected officials are trying to shrink that even farther by increasing taxes. You know what I mean if you live in California one of the most heavily taxed state with a governor who is threatening to once again increase sales tax, personal income tax, and taxes on small businesses. Did I mention my husband and I left California for this very reason? But I digress ….

A retirement account allows you to save your money before it gets taxed. If you take your money home, you have to earn about $1.00 to see $.75 in your paycheck. But if you put it that dollar into a retirement account instead, you get to deposit the entire $1.00. You get to invest the $.25 that belongs to the government. It’s not a gift; you will have to pay that $.25 to the government eventually. But for now you get to keep all the growth you will achieve by investing the government’s money! Get it? And it’s all locked up so it is safe from YOU. That’s the beauty of a retirement account. Read more