Taking any amount from the account which is supposed to fund an individual’s retirement is not recommended unless the situation calls for it.
Los Angeles, CA (PRWEB) April 10, 2014
Being in a state of financial difficulty could happen to anyone and non-access to either emergency savings or immediate bank loans would leave an individual with no choice but to use other means he have—like his retirement savings. Sense Financial, a California-based Solo 401k provider explains why it is better to use the individual 401k loan rather than making withdrawals from retirement funds.
Here are some helpful insights on why loans are better than withdrawal of funds:
-Taking any amount from the account which is supposed to fund an individual’s retirement is not recommended unless the situation calls for it. When an account holder makes a withdrawal, whether on a hardship or just a regular early withdrawal, the amount that he takes from the account is subject to income tax and 10% penalty. Though there are circumstances where penalty could be waived on hardship withdrawals, the fact that the money will permanently leave the account will put an individual’s retirement future at risk.
-Money taken from the 401k account in the form of withdrawal will lose its growth opportunity and will leave the account with fewer funds come retirement age. To avoid this kind of risk, taking advantage of 401 k plan loans is better than to seek funds from withdrawal.
-Individual 401k loan option provides account holders to borrow funds from their savings amounting to $50,000 or an amount equivalent to half of the account balance, whichever is lower. There is no tax and penalty applied to the loan. Unlike hardship withdrawal, loans like the Solo 401k loan, doesn’t require a valid reason to gain approval. The money borrowed can be used in almost anything.
-Once an individual is granted with the Solo 401k loans, he must follow the repayment terms that has been agreed upon so that the account holder could avoid paying taxes from it. Normally the interest rate for an individual 401k loan is around 1% to 2% which is similar to the rate that banks charge. The interest rate is paid together with the principal according to the repayment terms which is normally every quarter. Interest rate is applied so that even if the funds that were supposed to earn from investments are taken, the account would still receive gains.
Anything that has to do with taking funds from a retirement account must always be planned carefully. As much as possible avoid touching funds from retirement account and always consider it as the last resort.
Sense Financial is California's leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. Over the years, they have assisted hundreds of clients obtain checkbook control over their retirement accounts while providing them with the ability to invest in virtually any investment class, including real estate, private lending, mortgage notes and much more without the need for custodian approval.
To learn more information about Solo 401(k) for self-employed real estate agents, please visit http://www.sensefinancial.com.