Planning a 401k Withdrawal

Are you interested in taking a 401k withdrawal in the near future? Do you have questions about when and how this should be done? Anybody who invests in a 401k is making a good decision. However, the decision to invest is only the first of many.

There are many withdrawal options, but before we get into them keep this point in mind: it is recommended to keep money for retirement in your 401k until you retire. In other words, an early withdrawal is never a good idea – unless you are in a dire financial situation.

A Few Simple Tips

Before making any rash decisions, consider these tips:

1. Except in the rarest of cases, 401k withdrawals are taxed as ordinary income. It is important to plan for the tax implications of withdrawing funds from your account.

2. If you withdrawal any money before the age of 59 ½ you will be hit with a 10 percent early distribution penalty. This is in addition to the tax that owed on the money.

3. You have the right to delay distributions until April 1 of the year after you turn 70 ½. Doing this gives you the chance to maximum tax deferred growth and save even more money. Once you reach this age, you are required to annually withdrawal your Required Minimum Distribution.

If you don’t withdrawal your Required Minimum Distribution you are penalized 50 percent of the difference between the withdrawn amount and what should have been distributed.

No matter your age or how much money you have in your 401k account, it is essential to carefully plan any withdrawal. How much tax will you pay on the withdrawal? Will you be assessed an early distribution penalty? These are the types of questions you must answer.

By following the tips above, you should be able to successfully plan a 401k withdrawal.

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