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Tapping into a 401(k) can lead to more taxes

A survey from financial services firm Charles Schwab

A survey from financial services firm Charles Schwab found that nearly 25 percent of 401(k) holders tapped their retirement accounts before they hit the age of 59½, leaving themselves open to tax penalties, and worse, reducing their retirement nest egg. Photo Credit: iStock

As you head toward retirement, the money you have stashed away in a 401(k) can be comforting. Unfortunately, it can also be tempting.

A survey from financial services firm Charles Schwab found that nearly 25 percent of 401(k) holders tapped their retirement accounts before they hit the age of 59½, leaving themselves open to tax penalties, and worse, reducing their retirement nest egg.

While 24 percent of those who withdrew funds early said they needed it to "pay everyday bills," the rest either took the money or borrowed against their savings for what Schwab calls "less-than-urgent reasons," including down payments on a house or taking a vacation.

Schwab notes that even if you set up a loan and borrow the money from yourself, you have to pay back the loan with interest from after-tax money that will be taxed yet again when you take it out of the account after you retire.

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