As your retirement plan balances grow, you may be tempted to tap them for short-term needs. Even if your decision is warranted by true financial needs, like paying your rent or mortgage after being unexpectedly laid off, the reality is that nearly any other financial alternative is preferable. Worse, if your new car – after all, you were tired of your old one - causes you to tap your retirement account to make the new monthly payment, you’ll suffer financially just the same.

Here are the top five reasons why an early retirement withdrawal is dangerous:

1. You’ll Owe Significant Income Taxes on Your Retirement Plan Distributions

Let’s say you have $20,000 in your traditional IRA or 401(k).  For whatever reason, you decide you need the money. You tell your IRA or 401(k) custodian that you want to take your money.  While you might expect to receive a check in the vicinity of $20,000, you won’t come close.  While the actual withholding on the check might vary, you’ll ultimately pay your top tax rate on the distribution. As such, a typical middle-class taxpayer in the 25% tax bracket loses $5,000 in federal income taxes off the top.

2. But Wait, There’s More – Your State Will Also Take Its Share

Your state is next in line.  With few exceptions, nearly every state has an income tax that will be assessed on your early retirement distribution. Certainly, five percent or more (i.e., another grand) could easily disappear from your check.

3. An Early Distribution Means a 10% Penalty

In exchange for the tax break you received when you contributed to your retirement account, the government asked of you just one thing.  The request?  That you leave your retirement plan money in your retirement account until retirement.  When you don’t follow through, they penalize you in the form of a 10% early distribution penalty. So, in addition to the federal and state income taxes, you’ll owe an additional 10% of the amount distributed.  On a $20,000 withdrawal, that’s another $2,000 down the drain, never to be seen again.

4.  An Opportunity Lost Forever

The amounts you can contribute to a retirement plan each year are limited. For example, those under 50 can contribute just $5,000 a year to their IRA. Annual contributions to a 401(k) are also limited.  If you take two or three years worth of contributions out of your account, you cannot put the money back in later – even when you can afford to.

5.  Lost Future Growth

Perhaps the biggest sacrifice you make when you take an early distribution from your retirement plan is on your future. Specifically, you will lose the anticipated growth of the money between the moment you withdrew it and your expected retirement. Due to the penalties and taxes, it’s reasonable that the $20,000 you take out at age 30 would provide you with a net check of about $12,000. Yet, that same $20,000, earning 8%, would be worth nearly $300,000 by age 65.  Giving up $300,000 in the future for $12,000 today is a huge sacrifice that will impact your retirement. No doubt, it will hurt far more in the future than it does today.

Both the short-term and long-term dangers of early retirement withdrawals are real.  When you have an emergency fund, you can survive unexpected financial turbulence without wrecking your carefully crafted long-term plans. Without one, you might have to take a major hit to your future standard of living.  Once again, preparation and planning are key.