Americans lose $5.7 billion each year to 401(k) and IRA early withdrawal fees—here's where that money goes (via CNBCMakeIt)
from qualified retirement plans in 2017, the latest year that the agency has made data available. These taxes generally only apply to distributions taken prior to 59½ that do not fall under allowed exceptions. That means Americans took out roughly $57 billion in early distributions that year that were subject to penalties, according to CNBC Make It's calculations.
On an individual level, the IRS received about 5.1 million returns that reported paying the withdrawal penalty tax in 2017, which means the average amount paid was about $1,107 per return. That means people are taking out just over $11,000 from their retirement accounts, on average, for non-exempt uses.
But raiding your retirement account has consequences beyond just the taxes and penalties you'll pay upfront. There's also an opportunity cost to using your retirement savings early. A $5,000 balance today could be , assuming a 7% annual rate of return. Many times, every dollar counts when attempting to save for retirement.when it comes to saving enough for retirement, so pulling funds out is generally not a good option.
If you need cash and don't have any emergency savings to use, consider taking a 401 loan. These loans are not taxed, but you can only take up to half of your vested account balance — and not more than
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