Suze Orman: The 1 Thing To Never Do With Your 401(k)
Written by
Jennifer Taylor
Edited by
Zuri Anderson
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Money put aside in your 401(k) plan is for retirement and retirement only, according to money expert Suze Orman. Despite that, recent IRS changes have made it easier to access a portion of your funds.
If financial needs arise, it can be tempting to tap into these funds, but she has strongly advised against it. GOBankingRates breaks down Orman’s argument against ever withdrawing funds from your 401(k) account.
How Much Can You Withdraw and How Often?
Since Jan. 1, 2024, you’ve been able to take one distribution per calendar year from a qualified retirement plan for personal or family emergency expenses, without incurring a 10% early withdrawal penalty. You’re able to take up to $1,000 per calendar year from a vested account balance over $1,000.
If you can swing it, you have three years to pay the money back, but you’ll lose any compound interest you would’ve earned with the money sitting in the account. You’ll also need to include the withdrawal in your gross income when you file your tax return.
Why You Shouldn’t Withdraw the Money
While the money is yours, and now more easily accessible, Orman doesn’t want you to rely on it for pre-retirement expenses. In a blog post, she emphasized the importance of having at least $1,000 in an emergency fund, so you don’t have to tap into your 401(k) plan.
“I want you to eventually have far more than $1,000 in your emergency savings fund, but if you’ve yet to get started, I think $1,000 is a terrific savings goal to set for yourself,” she wrote. “Once you have the $1,000 in your savings account, you won’t need to tap your retirement savings if an emergency expense does arise.”
Despite warning against taking money out of your 401(k) before retirement, Orman expressed that sometimes it can’t be avoided. Whether you’re hit with unexpected costs or stuck in a period with a lower-than-usual income, she wrote that things happen.
To emphasize, she doesn’t want you to withdraw money from your 401(k) for an emergency personal expense — she’s very against this. However, she noted that having the ability to do so can serve as a relief, if you have no other financial resources to fall back on.
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