Nobody likes paying more than they have to, especially when it comes to accessing your own money. Well, that’s what happens when you take money out your retirement account prematurely. Find out why the IRS ATM fee can take a big bite out your potential retirement funds and what you should be doing instead.

• The IRS has an ATM fee. There is no physical machine, but when you take money out of your retirement account, that money is taxable. Typically we get some sort of tax deferral on the front end.
• The IRS has an ATM fee. There is no physical machine, but when you take money out of your retirement account, that money is taxable. Typically we get some sort of tax deferral on the front end.
• What most people forget is that you pay a 10% premature distribution fee, also known as the IRS ATM fee.
• If you take money out of a retirement account prior to the age of 59 and a half, it’s considered premature and that causes a penalty.
• If you take $1000 out of your IRA, you’re going to pay some tax. Something like 20%, but you would also pay a 10% fee on top of that, so you’re looking at a cost of $300 just to access your own money.
• Not only that, but that money is out of your retirement account so you’re no longer getting the compounding interest on it. It can make it easy to fall into the cycle of looking at your retirement account as something that you can continue to draw on whenever you have a need.
• There are exceptions, but it depends on your type of retirement plan. There are different types of exceptions for IRA’s and employer sponsored plans. It also depends on the purpose of the money.
• One example is higher education expenses, which are an exception with an IRA but not a 401(k). When retiring from working at the age of 55, that’s an exception with the 401(k) but not the IRA.
• Usually when people are taking money out of a retirement account, it’s for a hardship, but there is no exception for a hardship. Some plans allow you to take a hardship withdrawal but you still have to pay the IRS ATM fee.
• To avoid paying this fee, think twice about whether or not there is a slightly less expensive way to get the money. Also, when you are taking money out of your retirement account, you can have them withhold taxes. Make sure you are withholding enough to pay any taxes as well as the penalty.
• Email [email protected] to get your free copy of the Exemption Chart.
• Develop a cash reserve of at least three months to help you avoid dipping into your retirement accounts when emergencies come up. Always be planning to build your retirement, not withdrawing from it. You don’t want to waste money when there is no do-over.

 

To explore working with Wayne Firebaugh to fireproof your money, please call 855-WAYNE KNOWS or check out at fireproofyourmoney.com.