There are serious consequences to accessing your retirement funds early. If you’re below 55, you’ll be stuck with a 10% penalty on money withdrawn from 401(k)s and 403(b)s, and if you’re under 59 ½, you’ll get the same penalty on savings plans like IRAs and deferred annuities. (There are certain circumstances where these penalties can be waived. Check the options for your specific account for more details.)
If you withdraw from a tax-deferred account, you’ll also have to pay taxes on the money, which means even less is actually going into your pocket. Most importantly, by withdrawing early, you could drastically reduce the amount left in your account to grow for your retirement or, worst-case scenario, drain the account entirely. This can put a big dent in your retirement options and financial security.
When you need money as soon as possible and don’t have an emergency fund sufficient to cover it, you’ll hopefully have other, less damaging options that you can pull from before going straight to your retirement account. To start, consider saving some money by restructuring your budget. While set amounts like rent or auto loan payments may not change so easily, cutting out unnecessary expenses can free up a lot of cash. Use this budget calculator to see where you can cut back and how much that can save you.