The 401k withdrawal penalty isn’t exactly the best part of the plan. Not being able to use your own money how ever you want doesn’t seem like something that can be helpful. On the other hand this does its part in helping people create a better future for themselves in the following ways.
1. Stops Foolish Spending
Many people will buy things for foolish reasons. There is just something we all have that makes us want to buy new things. The fact that most people live paycheck to paycheck without putting away any money into a savings account is the major reason why 401k plans exist at all.
We all have the tendency to want to buy the latest gadget and to justify taking out an 401k withdrawal by sayings something like; I’ll pay it back later. Even though 9 times out of 10 just saying we will make something up isn’t going to make us actually do anything. It may not even be possible to contribute more if you already contribute the 401k maximum contribution.
The early withdraw penalty may help us to think again, vs a savings account which has no such regulations.
2. Helps People Look For Other Alternatives
By having a penalty for taking money out early also forces us people to look for other alternatives to get things we want and to help pay the bills. Forcing people to think may not be very popular, but it is essential to prompting growth.
For example, if you want more money you might start a business or invest into something else. Each helps to boost the economy and making life a little bit better for the future generations as a side effect.
3. Helps People Realize How Important Retirement is
People rarely want to think about what will happen to them once they retire, it is just too far away to even consider. People may think about what they want to eat for their next meal, but something so far off into the future as retirement is often forgotten, especially for the young.
These plans do what they where created to do and that is to help people save money for retirement and to be aware of how impotant it is. The early withdrawal penalty can help people to think about their future a little before they pull money out prematurely.
