News
Welcome to the News community!
Rules:
1. Be civil
Attack the argument, not the person. No racism/sexism/bigotry. Good faith argumentation only. This includes accusing another user of being a bot or paid actor. Trolling is uncivil and is grounds for removal and/or a community ban. Do not respond to rule-breaking content; report it and move on.
2. All posts should contain a source (url) that is as reliable and unbiased as possible and must only contain one link.
Obvious biased sources will be removed at the mods’ discretion. Supporting links can be added in comments or posted separately but not to the post body. Sources may be checked for reliability using Wikipedia, MBFC, AdFontes, GroundNews, etc.
3. No bots, spam or self-promotion.
Only approved bots, which follow the guidelines for bots set by the instance, are allowed.
4. Post titles should be the same as the article used as source. Clickbait titles may be removed.
Posts which titles don’t match the source may be removed. If the site changed their headline, we may ask you to update the post title. Clickbait titles use hyperbolic language and do not accurately describe the article content. When necessary, post titles may be edited, clearly marked with [brackets], but may never be used to editorialize or comment on the content.
5. Only recent news is allowed.
Posts must be news from the most recent 30 days.
6. All posts must be news articles.
No opinion pieces, Listicles, editorials, videos, blogs, press releases, or celebrity gossip will be allowed. All posts will be judged on a case-by-case basis. Mods may use discretion to pre-approve videos or press releases from highly credible sources that provide unique, newsworthy content not available or possible in another format.
7. No duplicate posts.
If an article has already been posted, it will be removed. Different articles reporting on the same subject are permitted. If the post that matches your post is very old, we refer you to rule 5.
8. Misinformation is prohibited.
Misinformation / propaganda is strictly prohibited. Any comment or post containing or linking to misinformation will be removed. If you feel that your post has been removed in error, credible sources must be provided.
9. No link shorteners or news aggregators.
All posts must link to original article sources. You may include archival links in the post description. News aggregators such as Yahoo, Google, Hacker News, etc. should be avoided in favor of the original source link. Newswire services such as AP, Reuters, or AFP, are frequently republished and may be shared from other credible sources.
10. Don't copy entire article in your post body
For copyright reasons, you are not allowed to copy an entire article into your post body. This is an instance wide rule, that is strictly enforced in this community.
view the rest of the comments
Because that was the deal to be allowed to invest that money without paying taxes
The goal, at a societal level, is the incentivize keeping it in a retirement fund
You can always pay yaxes and invest the money in a brokerage account if you don't want to risk penalties
Putting fees on early withdrawals actually disincentivizes people from using 401ks or Roth IRAs. I’ve been unemployed for 3 of the last 5 years and I know that I will not be investing in retirement accounts until I have several years of steady employment under my belt, simply because I know I may need that money. The job market simply isn’t stable enough for me to even think about parking my money somewhere I can’t access it. I know I’m not alone.
I get what you’re saying but they should at least allow you to withdraw if you become unemployed.
That’s fine but why does the incentive become a hurdle when life gets in the way? If I lost my job, and my house, and needed money, getting penalized for having life happens doesn’t look like an incentive anymore.
Because if you didn't do that, everyone would put 100% of their money into their 401k (at least up to the contribution limit) and then withdraw it right back out to avoid paying taxes on it.
You pay taxes when you withdraw. The 10% is additional penalty for early withdrawal.
You are generally better off doing a loan if your plan allows since you pay yourself back with interest. Of course that requires you to be employed and planning on staying at that job until it's repaid.
You pay income taxes when you withdraw (meaning withdrawals are treated as income). However, 401ks also have the benefit of not being taxed while they grow. So you can contribute money pre-tax and don't pay taxes while the money grows.
Yes of course but what we're discussing here is ramifications of early withdrawal. There is a 10% penalty on top of the regular income tax.
Fair, I was trying to add context on why there is a penalty. Should have made that more clear.
I understand that, but the other user can't seem to imagine why they won't let you withdraw this tax-free income without any sort of penalty.
They said they can't understand why they have to pay a penalty not why they have to pay income tax.
And my comment was regarding the reasoning why they charge the penalty. It's not a rainy day savings account.
Because the cost of the agreement is the promise not to withdrawal. Otherwise you're asking for something for nothing.
So I should have foresight to years later if I may have a life altering instance happening in my future?
Yes typically you would build an emergency fund before investing money so that you're prepared with a plan for a life altering event same as investing in a 401k is preparing for retirement.
Also makes everyone with a 401k push for lower taxes long term.