Based in New Orleans, Equitas Capital Advisors combines a boutique approach to finance with the capacities of a major investment bank. The Equitas Capital Advisors team has a strong interest in industry developments spanning fiduciary rules and 401(k) plans.
A tax advantaged savings vehicle, the 401(k) is ideal for employees saving for retirement in the long term. When faced with a pressing high-interest loan, house down payment, or medical issue, those who contribute to 401(k) plans may be tempted to take an early distribution. This is almost always a bad idea for a number of reasons.
Due to strict repayment rules, 401(k) loans require payments once per quarter and must be paid off in full within five years, with certain exceptions made for primary home down payments. If these repayment guidelines are not met, the entire unpaid amount of the loan is considered taxable by the IRS. For those younger than 59 1/2, a 10 percent penalty is assessed on the early withdrawal in addition to state and federal taxes on money withdrawn. This can result in a tax bill of more than 40 percent on what was withdrawn.
In addition to missing out on potential investment earnings, early withdrawal poses the risk of having to pay back the loan immediately and in full, should a job be vacated and an outstanding 401(k) loan remain.
