If you’re like most Americans, your retirement accounts could be your biggest asset. And if you have a financial emergency, the absence of available cash could make them look like a good option.
But tapping into these types of accounts could cost you big in the long run. Here’s how.
1. You’ll owe taxes
When you save into a traditional 401(k) or IRA, you get the benefit of tax-deferred growth. For your 401k and an IRA, if you qualify, the amount that you contribute also gets deducted from your taxable income for the year.
So if you make $100,000 and contribute $15,000 to a 401(k), you only owe taxes on $85,000 of your income. The growth that you experience from stock market appreciation in these accounts is also tax-deferred. But you don’t avoid paying taxes forever, and the time comes when Uncle Sam will collect his share. That happens when you start taking money from these accounts.