GOLDEN VALLEY, Minn.- Early withdrawals from retirement accounts are often relied upon as a back-up piggy bank, incurring penalties and taxes as well as jeopardizing the future financial security of those taking them. Our KARE-11 contributor, Dan Ament, Financial Advisor with Morgan Stanley joins us to discuss a recent Bloomberg article addressing the dilemma for those facing this decision and the longer-term implications to consider.

A Federal Reserve study last year found that in 2010, 9.3 percent of taxpayers with retirement accounts or pensions were penalized, up from 7.9 percent in 2004. Younger workers ages 20 to 39 have the highest cash-out rates, with about 40 percent taking money with them when they switch jobs, according to data from Fidelity. Withdrawals, at any age, are added to a taxpayer's income and taxed at regular rates. The extra 10 percent penalty for 401(k) plans applies to early withdrawals, except in cases of disability and certain medical expenses. Americans who leave their jobs at or after age 55 also can escape the penalty with options including what the IRS calls "substantially equal periodic payments". Withdrawals from individual retirement accounts also contain exceptions to the penalty, including death, disability, higher education expenses, qualifying medical expenses that exceed certain levels and a first-time home-buyer provision.

Some withdrawals of money from Roth, funded with post-tax money, can avoid penalties. If you are eligible, consider funding a Roth IRA as a back-up emergency fund should you face a financial hardship in the future. You are eligible to withdraw your principal contributions without penalty or taxes should you need to in the future

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