Meta: Many Americans understand the rules pertaining to having a 401K retirement account. What seems to confuse them are the rules and regulations related to making withdrawals.
As Americans became overly reliant on Social Security in the 1960s and 70s, it became clear they needed incentives to motivate them to save for their future. With this in mind, the IRS, under the direction of Congress, devised an employer sponsored savings plan called a 401K. This plan allowed employees to invest their hard-earned monies in a retirement account on a pre-tax basis. The only caveat was they had to keep their monies in said account until the age of 59 1/2 to avoid an early withdrawal penalty.
Understanding Complicated 401K Withdrawal Rules
After 40 …show more content…
Your distributions will always be taxed based on the tax brackets in force during the year(s) of your distribution(s).
6. Under IRS guidelines, everyone is required to start taking distributions from their 401K plan by the age of 71 1/2.
The 401K Hardship Withdrawal
If you wish to gain access to your 401K funds prior to hitting the age of 59 1/2, you would need to request a hardship distribution. Before you do this, you should know:
7. 401k hardship withdrawals are only permitted for emergencies such as medical expenses, the purchase of a home, college tuition costs, to avoid bankruptcy or foreclosure and funerals costs.
8. Once you make a hardship withdrawal, you will not be permitted to reinvest those monies back into your 401K account.
9. A 10 percent IRS early-withdrawal penalty will be levied on your hardship withdrawal through the applicable tax return based on the date of the withdrawal.
10. If your plan allows for plan loans, you might want to pursue this avenue in lieu of incurring the early-withdrawal penalty on a hardship withdrawal.
Your 401K account is suppose to help provide you with a nice little nest egg for retirement. Given the complicated nature of the rules surrounding withdrawals, you should consult with a financial advisor before taking
As Americans became overly reliant on Social Security in the 1960s and 70s, it became clear they needed incentives to motivate them to save for their future. With this in mind, the IRS, under the direction of Congress, devised an employer sponsored savings plan called a 401K. This plan allowed employees to invest their hard-earned monies in a retirement account on a pre-tax basis. The only caveat was they had to keep their monies in said account until the age of 59 1/2 to avoid an early withdrawal penalty.
Understanding Complicated 401K Withdrawal Rules
After 40 …show more content…
Your distributions will always be taxed based on the tax brackets in force during the year(s) of your distribution(s).
6. Under IRS guidelines, everyone is required to start taking distributions from their 401K plan by the age of 71 1/2.
The 401K Hardship Withdrawal
If you wish to gain access to your 401K funds prior to hitting the age of 59 1/2, you would need to request a hardship distribution. Before you do this, you should know:
7. 401k hardship withdrawals are only permitted for emergencies such as medical expenses, the purchase of a home, college tuition costs, to avoid bankruptcy or foreclosure and funerals costs.
8. Once you make a hardship withdrawal, you will not be permitted to reinvest those monies back into your 401K account.
9. A 10 percent IRS early-withdrawal penalty will be levied on your hardship withdrawal through the applicable tax return based on the date of the withdrawal.
10. If your plan allows for plan loans, you might want to pursue this avenue in lieu of incurring the early-withdrawal penalty on a hardship withdrawal.
Your 401K account is suppose to help provide you with a nice little nest egg for retirement. Given the complicated nature of the rules surrounding withdrawals, you should consult with a financial advisor before taking