Don’t do it. I repeat, please do not take money out of your retirement accounts on a whim, say, when you’re changing jobs or feel the need for an extravagant vacation. If you make the withdrawal anyway and you’re not age 591⁄2yet, you can look forward to the double whammy of both taxes and a penalty. First, you have to pay tax on any capital gains in the account. Then, you have to pay the IRS a 10% penalty. The same holds true for early withdrawals from regular IRAs. The IRS has agreed to waive the early withdrawal penalty on qualified withdrawals made from Roth IRAs before age 591⁄2—these include first-time home purchases and college education for the kids — but you still have to pay the taxes. Borrowing from retirement plans can be as bad or worse because you pay interest to borrow your own money. And you lose the interest you would have earned on these accounts.
Pecking away at retirement savings is no way to build your nest egg. If you’re changing jobs and don’t want to leave your money in the former employer’s 401(k) plan, roll the money directly over to an IRA at the fund company or broker-dealer where you have your other investments. Fill out a form that your former employer provides directing them ( or their plan provider) to roll your plan money into an IRA at your next firm. Make sure that you set up the account with the new firm first.
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