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What to know before cashing out your 401(k) to avoid any negatives. Here are the potential risks and consequences of cashing out your 401(k).
![What to know before cashing out your 401(k) to avoid mistakes [Photo: Money]](https://omdnewsnew.s3-accelerate.amazonaws.com/2023/08/Money.jpeg)
What to know before cashing out your 401(k) to avoid mistakes [Photo: Money]
Use 401(k) Plan Or 401(k) Loan
Some Americans have many reasons for wanting to cash out their 401(k) because of a sudden financial hardship such as medical expenses or job loss. It is important to know first the potential risks and consequences of cashing out your 401(k) before doing it. There are some steps to minimize any negatives.
Even if it is a valid reason you need to be careful. Think of it and review your financial situation, find another choice before deciding to cash out your 401(k) because these have long-lasting impacts on your financial future. Take note, you can’t put the money back once you withdraw it already. You need to be careful of your decision.
It is a good idea to speak to a financial advisor that can help you to decide what to do if it is right to withdraw your 401(k). It is best to consult first for you to have guidance. Because if you cash out early you are eligible for a tax penalty that will reduce your withdrawal amount. But, there are some ways to minimize the risk you can use a 401(k) loan rather than a plan or consider using a low-interest personal loan or a home equity loan instead. When you already choose an option tell your provider to guide you to the next process.
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