401K Withdrawal Rules

There are certain 401K withdrawal rules which everyone must follow. You may need to take an early 401K withdrawal in times of hardship such as a divorce or loss of job, but there are certain penalties if you are under 59 ½.

If you are under 59 ½ then calculating 401k early retirement penalties can help you to understand what will happen if you take an early withdraw.

If you take out money early you will receive a 10% penalty on it. For example if you take out $10,000 you will be charged a $1,000 penalty on that money. In addition to that the $10,000 will be charged as normal income.

So if the tax is 28% then you will be charged an additional $2,800. In this example taking out $10,000 will result in a $3,800 charge.

401k Loan rules

If you are under 59 ½ you may still take money out in the form of a loan. But the 401k loan rules dictate that it must be paid back within 5 years. In addition if you leave your current employer you may be forced to repay the loan within a very short period of time.

After 59 ½

After 59 ½ you can choose to take money out of your account without the 10% penalty attached to it. But you are still required to pay taxes out on any money that you withdraw.

After the age of 70 ½ you are required to take out a minimum amount from your account every year. This minimum is re-calculated every year based on your life expectancy and the amount of money in your account.

The amount you take out is taxed as regular income.

401k Hardship Rule

There are certain 401k withdrawal rules which allow you to take out money from your account in case of an emergency. These include things such as.

1. Paying Medical Bills not covered by insurance
2. Disability
3. Buying a house
4. Paying tuition
5. Avoiding Aviction

Talk to a financial expert to find out more about these special situations to see if you qualify.

Making a Decision

Before making any important decision about taking out 401k hardship withdrawals, be sure to talk to a professional to be advised on the best steps for you to take.

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