401k Withdrawal Options
If you are planning to withdraw money form 401k plans earlier than necessary, you might have to consider the amount of money you pay as penalty and the additional taxes incurred depending on the amount of money you withdraw.
The 401k withdrawal options are as follows:
- If you are under the age of 59.5 years and withdraw money from your 401k plan, you are liable to pay 20 percent local and federal tax. Along with this, you should also pay a ten percent penalty for withdrawing earlier than required.
- If you have passed the age of 59.5 years but are below 70.5 years, you can withdraw money and pay a 20 percent tax or less. This is called “withholding tax” which means, you may use this as refund if you have any dues left out after your tax return. If you are planning to change your employer, you can always leave the money with your previous employer. However, the amount of money you leave back should not be more than $5,000. You can also roll over your plans into Individual Retirement Account or IRA.
- Under certain circumstances, you need not pay penalty if you choose to withdraw before you turn 59.5 years. Conditions include:
- For paying medical bills that amount to more than 7.5 percent of your adjusted gross income
- If you are under immense financial hardships and not able to prevent a foreclosure, pay your college tuition fee, etc.
- Because of death or disability
- If you turn 55 years and decide to retire
- Money during divorce agreements
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