After the end of 2021 we fielded many calls from clients and others who were surprised by a large tax bill. Many had to raid their Emergency Funds or even sell more securities in order to pay last year’s tax. It was painful for everyone.
If a distribution was required under the SECURE ACT, then we would want to make sure we took that distribution to steer clear of the 50% IRS penalty imposed on those that are required to take a distribution that don’t.
When does it make sense to apply early decision instead of early action?
First we need to understand how a 401(k) loan works. Basically a 401(k) loan is a loan from yourself. Effectively you become your own bank. This means that when you borrow, you are paying it back, with interest, to your own 401(k) account.
When one holds a balance on their credit card at 20% and can pay the balance off, it is like getting a 20% return.
Perhaps most concerning is that when people are thinking about retirement income sources, they believe that earnings from work and their employer’s 401(k) or 403(b) are going to be major sources of income in their retirement years. These were the two areas of biggest disappointment, especially work for pay.