According to Bhalla, investors can be taxed upwards of 30 per cent on withdrawals. “It’s a huge hit for retirement,” he says.
In the very first meeting, Bhalla tells his clients to consider this tactic a last resort. If the option comes up later, he explores every other avenue for his clients to tackle their debt.
Focussing on financial education, Yih has considered how to solve this problem. His suggestions include educating investors (explaining in detail why taking money out is a bad idea and the consequences of doing so), monitoring withdrawals more closely, or having employers ban withdrawals on plans completely.
“A lot of companies don’t even know the withdrawals are as high as they are,” Yih says. “The question is how do we fix things? Is it temporary or is it an ongoing trend?”
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