A 401k is one of the most powerful investment vehicles for retirement — and it’s IWT’s favorite thing ever for several reasons:
- Pre-tax investments. You don’t get taxed on the money you contribute until you withdraw it at retirement age. This means you have more money to compound and grow.
- Free money with employer match. Most companies will match your 401k earnings up to a certain percentage. It’s basically free money!
- Automatic investing. The investments you make are taken from your paycheck automatically each month — which is a HUGE psychological benefit.
With all these awesome benefits though comes a cost: You can’t withdraw any of it until you hit the age of 59 ½.
If you do, you’ll be subject to taxes on your withdrawal as well as a 10% penalty from the federal government.
This, my friends, is the monkey’s paw.