• Home
  • About Us
  • Archives
  • Contact Us
  • Advertise
  • Privacy Policy

Kids Ain't Cheap

But They Sure Are Worth It

  • Home
  • Toolkit
  • Parenting
    • Baby Stuff
    • Books and Reading
      • Aesops Fables
      • Comic Books
    • Education
    • Family Time
    • Green Living
    • Growing Up
    • Healthy Living & Eating
    • Holidays
    • Parenting
    • Random Musings
    • Shopping
    • Stuff to Do
  • Money
  • Product Reviews
    • Books and Magazines
    • Discount Sites
    • Furniture
    • House Keeping
    • Reviews News
    • Toys and Games

How New Parents Can Tap Their Retirement Savings Penalty Free

April 9, 2020 | Leave a Comment

Becoming a parent or adding a baby, while an exciting time, can also be stressful.  Of course, there are the sleepless nights and the round the clock baby care, but there are also financial considerations.  Many people are surprised how many expenses come with the birth of a baby.  And, you must also consider who will care for the child.  In the United States, maternity and paternity leave are not universal.  If you or your partner want to stay home for a few weeks after the baby is born (or adopted) and you don’t have maternity/paternity leave, you’ll either need to save money for it or find a way to cover your expenses while you stay home.  If you fall into the latter category, it’s important to learn how new parents can tap their retirement savings penalty free.

How New Parents Can Tap Their Retirement Savings Penalty Free

Thank the SECURE Act

The SECURE Act (short for The Setting Every Community Up for Retirement Enhancement Act), which passed in December 2019, now allows parents who’ve had a baby or adopted a child within the past year to take up to $5,000 out of their retirement account penalty free.  If each parent has their own retirement account, each individual can take out $5,000, meaning the couple can take out $10,000 total.

Normally, if a person takes money out of their retirement account before 59.5 years of age, they have to pay a 10% penalty.  The SECURE Act eliminates this penalty for new parents.

How New Parents Can Tap Their Retirement Savings Penalty Free

Photo by Jonathan Borba on Unsplash

Taxes Still Need to Be Paid

While you won’t have to pay the penalty, you will still have to pay taxes on the withdrawal.  Whether you withdraw $5,000 or $10,000 (if both partners withdraw $5,000), that money will appear as income on your tax form, and you will have to pay taxes on it.

Why You Should Carefully Consider Using this Option

While knowing how new parents can tap their retirement savings penalty free when you’ve had a baby is a nice option, you should try to avoid tapping your retirement for a number of reasons.

You Lose Compounding Interest

If you take $5,000 out of your retirement income, you lose the compounding interest that money was making for you.  Every month, that money was generating income, and now, it won’t be.

May Start a Dangerous Precedence

Retirement funds are for retirement.  Once you start pulling from your retirement, you may start doing that regularly.  It’s very easy to start thinking of your retirement account as a de facto emergency fund and pull money from it whenever you have an unexpected expense.  If you get into this pattern, you can easily decimate your retirement account.

I have a friend whose child had emotional issues, so my friend was desperate to help her child.  She sent him to residential treatment facilities and wilderness camps to try to help her son get his behavior under control.  Her insurance wouldn’t pay for these treatments, so she relied heavily on pulling money from her retirement account.  Now, her son is grown and still having emotional problems.  She, meanwhile, has emptied her retirement account and is starting over, trying to build a new retirement fund at the age of 45.  It’s not a good place to be.

Payback Options

Of course, you can take out the money, pay your taxes, and be done with it.  However, if you want to make up for what you had to take out, there are ways to do so.

Pay It Back Within Two Months

Check with your financial advisor, but for many retirement accounts, if you withdraw money from your retirement account and can return that money back to the account within two months, it’s as if you never withdrew the money.  You won’t have to pay taxes on it.  Think of it as a short-term, two-month loan.

This can be an excellent way to get a short-term loan, IF you can pay it back quickly.  This may help you if you want to take a one-month, unpaid paternity leave and know you can get the money back into your retirement fund the next month.

Pay It Back Overtime

Another option is to gradually pay it back over time.  Under this option, you still have to pay taxes on your distribution.  However, by paying back the money to your retirement account, you gain back the power of compounding interest on the money you originally withdrew.  With this strategy, your retirement account will be healthier and more robust than if you simply withdrew the money and never paid it back.

Other Times You Can Withdraw from Your Retirement Account Penalty Free

Beyond how new parents can tap their retirement savings penalty-free within a year of having a new baby or adopting a child, there are other times people can tap their retirement accounts penalty free.  However, before considering taking money out for any other reason besides having or adopting a child, consult your financial advisor.  Some rules differ depending on the type of retirement account you have (IRA or 401K).

Educational Expenses

You can tap your retirement account penalty free for related higher education expenses such as tuition, fees, supplies and books.  This money can be used for your own higher education, or for your spouse or children.

How New Parents Can Tap Their Retirement Savings Penalty Free

Photo by MD Duran on Unsplash

First-Time Home Purchase

If you’re a first-time home buyer, you can take $10,000 out penalty free to use as the down payment on your new home.  If your spouse has his or her own retirement account, he or she can also withdraw $10,000, giving you up to $20,000 toward your new home.

Medical Expenses

Some years you may incur significant medical expenses in a year (i.e. greater than 10% of your annual income).  During those years, you can take money out of your IRA to pay for medical bills without incurring a penalty.

Final Thoughts

The SECURE Act gives new parents flexibility when it comes to their retirement withdrawals.  However, keep in mind, whether you withdraw money for a new child or for any of the other reasons you can withdraw money penalty-free, you still will have to pay taxes.  You’ll also be losing the power of compounding interest on that money, which may be the biggest hit of all.

Filed Under: Money and Finances Tagged With: 401k, financially afford children, having children, IRA, Retirement

What Fate for Annuities?

September 3, 2012 | Leave a Comment

Use a calculator to determine your annuties rates

Image: FreeDigitalPhotos.net

As the Eurozone crisis rages, many people approaching retirement age will be worried about how they fit in to the wider picture of financial security – especially in relation to annuities, which have been falling more or less constantly in recent years.

An annuity is a regular income paid out in exchange for a lump sum, usually after years of paying into a tax-free pension fund. They’re intended to be guaranteed for life, irrespective of lifespan (although the amount in each regular payout is age-dependent).

What is the Fate of Annuities?

For the lucky few who retired when the market peaked, it’s all cruises and second homes. But for those currently awaiting an annuity, the outlook doesn’t look as rosy.

Pensioners have in fact been getting squeezed for longer than most, with many reports citing a year on year drop off in rates since the early nineties. So what is happening to annuity rates? And how can people prepare for them to continue falling?

In short, the ongoing financial meltdown in Greece has severely dented the confidence of many investors, who have moved their money to British and German bonds, resulting in rising prices and falling yields.

What About Other Investments?

Of course it goes much deeper than that. Increased life expectancy has lowered the returns for everyone approaching retirement, as has a move towards more gender equality between annuity prices. In the face of an aging population, many governments and banks are in denial about the prospects for pensioners, arguing that the rising value of bonds will compensate for lower rates.

But many people simply don’t invest in bonds or corporate funds, and are wholly reliant on stable annuity rates. Those feeling the pinch are advised to seek some alternatives for their future financial security, and to shift their focus away from traditional annuities.

Remember, once you buy an annuity the rate is fixed, so even if rates go up in the future, your payments remain the same. Cast around on the web by searching for best annuity rates UK, and look at alternative investment funds (this article offers some solid advice on investment) so you can stop worrying and start enjoying your retirement.

 How have lower rates on annuities affected your retirement accounts?

Sponsored Article

Filed Under: Money and Finances Tagged With: Annuities, money, Retirement

  • Facebook
  • Pinterest
  • RSS
  • Twitter

Join Our Newsletter
  Thank you for Signing Up
Please correct the marked field(s) below.

1,true,6,Contact Email,21,false,1,First Name,21,false,1,Last Name,2



Best Parenting Blogs

Thanks To The Companies Supporting Us




Great Investing, Simplified: Get Stock Advisor for Just $99/year!
FinDIY makes it easy for college students to run their own financial life.

Can put up with homework?Assignment Geek will be your best option.

We work 24/7 at Ewritingservice.com to deliver top-notch essays.

Want to know more about CBD? – Check out CBDNerds.com

Write My Essay Today – custom essay writing company.

Cars for Kids

Brandon Eye Clinic
https://floridaeye.org/locate-our-office/brandon-eye-clinic-office/

senior photography Keller

Copyright © 2021 Runway Pro Theme by Viva la Violette