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Your Finance: Strategies to avoid tapping into retirement accounts

Think strategically and you can avoid prematurely tapping

Think strategically and you can avoid prematurely tapping into your retirement funds. Credit: Getty Images/iStockphoto/twinsterphoto

Americans are having a tough time saving for retirement, with many taking early withdrawals on accounts such as their 401(k)s or IRAs, according to a recent Bankrate survey.

Although income played a factor in taking early withdrawals, lower income wasn't as big an indicator as you might suspect. About 51% of households earning $30,000 to $49,999 annually had taken money early, while 50% of workers bringing in $50,000 to $79,999 did so. But of the highest-earning category surveyed ($80,000 and up), 44% said they’ve previously tapped their retirement money, too.

The problem is that if you take an early withdrawal, the money can’t be redeposited into the account. Workers can’t make up the lost savings, and they lose the huge tax and retirement benefits of their plans, costing them thousands in lost gains, if not more.

On top of that, early withdrawals can cost you in taxes, often with an added penalty of 10 percent. Those are a lot of negatives, and while there may be times when an early withdrawal is truly your only option, you do have other ways to access cash when you need it.

Here are some ways to avoid tapping your retirement accounts

Get an emergency fund (starting today)

The best way to prevent having to take an early withdrawal is to prevent the situation from happening in the first place – by having an emergency fund for those especially tough times.

An emergency fund is the base of any financial plan. It’s your own personal safety net, so that when the unexpected happens, you have cash to rebound and meet those expenses. This money can be earmarked in a special account, and you can even stash it in a high-yield savings account so the money isn’t just sitting there in a low-yield checking account, as it often does.

An emergency fund is the best first step to make, and you can do it relatively easily with an online bank, opening an account with one of the highest yields in the country. Then consider depositing money regularly (even $10 a week) so the money will be there when you need it.

Tap a new credit card offer

This might be a less obvious avenue for accessing cash, but it is possible. If you have good credit, you may be able to open a new credit card with a special 0% introductory offer.

You might be able to benefit in a couple different ways. First, many cards offer 0% interest on purchases for a period of time.

Second, some cards allow you to immediately take out cash from the credit line and may offer you a low introductory rate. A cash advance will likely set you back a fee of 3% to 5% of the loan amount, however. In either scenario, you’ll still have to keep up with minimum monthly payments.

Both these avenues could allow you to access cash quickly, but you’ll want to be sure that you can manage any payments that arise and preferably avoid carrying a balance when the card begins charging its regular interest rates, which could easily go above 20 percent.

Access your community

Friends and family may be able to offer financial or material support, for example. In addition, community resources such as food banks and charities can also be resources. And your religious organization or others may be able to provide food or other aid.

In the Bankrate survey, a third of respondents indicated that they had taken an early withdrawal because of unemployment. If job loss is the main cause of your financial distress, be sure that you file for unemployment and collect any benefits that you’re eligible for.

A 401(k) loan

While an early withdrawal comes with a lot of downsides, you may be able to take a loan from your 401(k) that eliminates at least some of those negatives.

If your plan allows you to borrow, it may have some stringent conditions and limits on the amount.

And if you don’t repay the loan? It’s treated like an early distribution.

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