401k employer-sponsored retirement funds bring the employee many financial advantages. The principal gain comes as the amount invested grows to form the foundation for a financially secure-retirement. The fact that contributions are tax deductible makes paying into the plan one of the best investments around. In addition to the amount earned on money invested the tax saved also enters the equation. The presence of a large sum in a 401k plan is however very tempting in tight financial situations.
1. 401K Plans are Not Bank Savings Accounts
Banks require a certain period of notice to withdraw money from a savings schemes but 401K Plans are much more tightly regulated. Different rules apply to permanent withdrawals and loans to be repaid. For example, the amount of money that can be contributed in a year to the 401K is limited so money borrowed cannot easily be replaced, not to mention the loss of interest and earnings recovered. There are also strict requirements for providing certain documentation with withdrawal requests.