Most 401(k) plans allow participants to borrow up to half of their account balance (but not more than $50,000) and repay the loan over five years. But that can take a big bite out of your future savings because any money you withdraw loses the power of compounding.
| Row 0 - Cell 0 | Six Ways to Build Your Retirement Savings |
| Row 1 - Cell 0 | How Working Longer Adds Up |
| Row 2 - Cell 0 | Catch Up on Your Retirement Savings |
In addition, if you change or lose your job, the loan is due immediately. Fail to repay it and the money will be treated as a distribution that is subject to state and federal income taxes, plus a 10% early-withdrawal penalty if you are younger than 55. Some plans offer hardship withdrawals that do not have to be repaid, but they're still subject to taxes and a penalty that can wipe out up to half of your distribution.
You can't borrow from a traditional IRA, but you can withdraw your money at any time. However, you'll pay taxes on the withdrawal and, if you are younger than 59, a 10% penalty, too. If you have a Roth IRA, you can withdraw your contributions (but not the earnings) at any time tax-free and penalty-free.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Gregory Dyson, senior vice-president of marketing for ICMA-RC, which provides retirement-related services to state and local government employees, gives this example of the long-term impact of premature withdrawals.
Let's say you are 35 years old and have a retirement-account balance of $30,000. If you take a $15,000 hardship distribution, it would cost you more than $122,000 in lost savings over the next 30 years, assuming an average annual investment return of 7%. "That's a very high price to pay for a short-term fix," says Dyson.
If you're really squeezed for cash and feel you have no choice but to cut back on your savings, at least try to contribute enough to capture your employer's match. Otherwise, you're walking away from free money.
A recent evaluation of nearly one million 401(k) participants by Financial Engines, a leading provider of investment advice and managed accounts, shows that one-third of workers failed to contribute enough to capture the full company match. With depressed stock values, you'll have the added advantage of being able to buy more shares at lower prices.
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2026retirement plans The Roth 401(k) contribution limit for 2026 has increased, and workers who are 50 and older can save even more.
