Leakage is a term used for retirement accounts when people take money out before retirement age. Their retirement savings are ‘leaking’ out. There are a few ways that happens. One is early withdrawals. Another is taking a loan against your 401k at work (if that is allowed).
It can seem like the sovereign panacea. You have a $10,000 bill to fix the roof, and you have $100,000 in your IRA. You’re just taking out 10% to do a repair that must be done. Except of course it’s not 10%. Because you have to pay tax and a penalty, you are going to need to withdraw roughly $13,000 to be able to net the $10,000 you need. That’s a 30% fee on that $10,000.
My advice about this is pretty simple. Don’t do it, it’s a trick. Unless it’s truly a life threatening emergency, it’s best to leave those funds alone. They don’t belong to you anyway. That is, they don’t belong to young you. They belong to older you. Older you will be pretty mad when retirement age comes along and there just isn’t enough money there. If you possible can, resist the temptation for leakage of your retirement savings.