401(k)

FINRA warns sternly against using your 401(K) to get through a rough patch. For one thing, if you are under age 59-1/2, you'll be paying taxes through the nose: You'll have to fork over ordinary income tax on the amount you withdraw, plus a 10% penalty tax. To increase the pain, some employers will withhold 20% of your withdrawal amount. Which means that instead of getting the $20,000 you were hoping to use to pay the bills, you could wind up getting less than $14,000.

However, the biggest price you'll pay will be losing the opportunity to increase your investment in the future. Let's say that you're 40 years of age, and you have $40,000 in your 401(K). If it's growing at a conservative rate of 6%, you'd have more than $107,000 in 17 years, and that's even without adding more contributions. But if you withdraw half of your $40,000, the remaining $20,000 would be worth less than $54,000 in that same period of time. That's a dead loss of more than $50,000 just to get that $14,000 for your current needs. Think about it. Read More »

Thought we learned this lesson when Enron imploded: Don't put too much of your retirement savings into company stock, either through 401(k) plans or employee stock option plans. Then along comes the Bear Stearns flameout this week, and it turns out it's time for a refresher course in retirement savings.

When JP Morgan swooped in to buy the investment firm for $2 a share before it hit bankruptcy, we learned that Bear Stearns employees, thousands of whom face losing their jobs, own one third of the company's disastrously devalued stock.
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