Looking Back at My First 401(k)
When I think back to my early twenties, I remember how excited I was to land my first “real” job after college. It came with decent pay, benefits, and something I barely paid attention to at the time: a 401(k). I didn’t know much about retirement savings, but opening a 401(k) seemed like a good “adulting” move.
Over time, a few thousand dollars quietly built up in that 401(k). I didn’t check on it much. I didn’t really understand how it worked. It was just…there.
Then, a few years passed, and I switched jobs. As I was tying up loose ends, I rolled that 401(k) into an IRA. I remember thinking, “Okay, I’m responsible. This is what I’m supposed to do, right?”
Then the pandemic hit, and life took a turn. Like so many others facing financial hardship, I looked at my rollover IRA, the one I set up to keep my old 401(k)s safe and thought, “It’s my money, I need it now, not later.”
I was 25, and in that moment, I made what I now realize to be one of my biggest financial mistakes.
What I Didn’t Know at the Time
When I withdrew that money early, I had no idea what I was signing up for. Sure, I knew I’d get taxed on it but I didn’t understand how much that penalty would actually cost me. Between federal taxes, state taxes, and the 10% early withdrawal penalty, I lost a big chunk of that money before it ever touched my bank account. To top it off, I had to hire an accountant just to untangle the mess during tax season. One more headache I hadn’t anticipated.
The real loss wasn’t just in the penalties, it was in the earning potential. That account was my first (and only) 401(k) at the time. It might not have had a ton in it, but that money had decades to grow. If I’d left it alone and let compound interest do its thing, that small balance could’ve doubled or tripled (or more) by the time I retire.
