Taking Early Withdrawals From A 401k Retirement Plan
Have you heard that you can take money out of your 401k before you turn 59 ½ ? While not always a wise decision to make it can be helpful if you are suffering from a hard time financially and desperately need money now.
Even though it isn’t favorable to take out money early there are ways you can do it, just make sure that if you do you are withdrawing because you need to take money out and are not just doing it to buy some fancy new car.
So what will happen when you take money out early? Well according to the 401k withdrawal rules you are able too take money out before the age 59 ½, however you will have to pay a 10% penalty and you will have to pay taxes on that money.
Having to pay both fees can take a large chunk out of your money. It can also have a bad impact your long term retirement plan. If you take out $10,000 today would mean you will have less money when you eventually retire, which is when you would need it the most.
And when you factor in other things such as the interest you would have made on that money it can be even more expensive.
A way you can get around this is to simply take out a loan from your 401k rather than taking out a withdraw. This will allow you to not have to pay a 10% penalty and you will not have to pay taxes on it.
The 401k loan rules do have some advantages, such as a low interest rate and a 5 year payback period. These benefits in some ways make it appear much more attractive for the average person then a simple withdraw.
But it has its disadvantages as well. For one thing you may not be able to deposit any more money into your 401k account while you have a loan out. This can singlehandedly stop you’re saving in its track and cause you to be unprepared when retirement comes around.
In conclusion there are a number of different options available for you if you want to take money out of your 401k early. However it should still be a last resort kind of deal. The impact it can have on your overall retirement account simply cannot justify taking money out to buy a new gadget, but it can be justified if it is, say the only way to stop you from declaring bankruptcy.
That being said if you are in an actual time of crisis such as a disability or you have a lot of unpaid medical bills that are piling up you may be able to tap into your account without having to pay the extra penalties for withdrawing. But check with your accountant to make sure you qualify before you make a decision.
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