Like the rest of the United States, you are probably just starting to get to know vice presidential candidate Gov. Tim Walz. It’s been well-documented at this point that Vice President Kamala Harris’ running mate was a high school teacher and governed the state of Minnesota through the years of the COVID-19 pandemic lockdown.
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What you might not know about him is that Walz withdrew $135,00 from his retirement account early, a gamble that is normally not advised, yet seems to have paid off for him and his family. According to CNBC, Walz and his wife reported their 2023 income to be at $300,000 and, in the same year, Walz withdrew from a workplace account about $135,000 early to help fund his daughter’s college education expenses.
Is this advisable for the general American worker with a retirement account? The short answer is: usually not.
“Withdrawing funds from a retirement plan before age 59 ½ is not typically recommended,” explained Joe F. Schmitz Jr., the founder and CEO of Peak Retirement Planning. “Not only are you taking away the power of compound interest, but you are, in most cases, also subject to a 10% early withdrawal penalty, and the funds are taxed as ordinary income the year you take them.”
Walz is in a unique position, with his retirement savings estimated to be in the range of over $1 million. If you do that math, the withdrawal is not that much considering what’s left in the retirement account, coming to about 10% of what Walz had saved up to that point in time.
Due to his years in office, working for a public school district and serving as a national guardsman, Walz is expected to receive a sizable pension income during retirement, a portion of which he’s already been collecting. For that 2023 income of $300,000, annuities or pensions added up to roughly $135,000, the same amount he withdrew.
“There are exceptions to the early withdrawal penalty,” said Schmitz Jr. in regard to what would happen to the typical American trying to dip into their retirement account early. “In Gov. Walz’s case, he qualified for a penalty-free withdrawal because the money was used for his daughter’s college expenses.”
With that in mind, are there any takeaways or lessons to be learned that the general voting public can apply from Walz’s withdrawal? In fact, there might be a few.
Avoid an Early Withdrawal If Possible
Because it’s likely that you are not making as much money as Walz and his wife in the average year, it’s advisable to steer clear of any early withdrawals of funds from retirement accounts. The point is to allow the money to grow, untouched, until it is time to cash it out during your post-work years. Taking out an amount — small or large — not only leaves you with less money down the line but could also trigger some penalties.
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Penalties for Early Withdrawal Are Significant
This isn’t a slap on the wrist or a warning; rather, it’s an expensive endeavor come tax time. That’s because anything you withdraw from an account that is similar to a 401(k) is taxed as regular income for that year. So not only do you need to report and pay the taxes on the money, but any funds taken out prior to the age 59 ½ come with a tax penalty as well. That money can add up quickly, draining your financial stability in the process.
Never Make an Early Withdrawal Unadvised
There are so many mistakes we can make with our retirement account when we are simply contributing to it, along with so many more if we try to take money out early. That’s why, if necessary, consult with an accountant or financial expert with a focus on retirement planning before you do anything.
“Before taking from a retirement account pre-maturely, ensure that you talk with your financial planner and get guidance to ensure this is the best option for your plan,” Schmitz Jr. said.
While Walz’s story is aspirational, most people are not in his situation and should take caution to avoid making any financially damaging mistakes by mirroring his early retirement withdrawal. For now, continue to save and remember to vote.
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This article originally appeared on GOBankingRates.com: What You Can Learn From Vice Presidential Candidate Tim Walz’s Early Retirement Account Withdrawal
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