A penalty-free withdrawal allows you to withdraw money before age 59-1/2 without paying a 10% penalty. You will still have to pay taxes at ordinary income-tax rates.You may qualify to take a penalty-free withdrawal if you take a distribution before age 59-1/2 and meet any of these situations: Again, check with your company’s human resources or personnel department to learn if these withdrawals are allowed by your employer and how to apply for them.
Once you turn age 70-1/2, you are required to start taking 401K withdrawals whether you need or want to or not.
After all, the IRS let you defer paying taxes on your contributions and growth, but there is a limit to the government’s generosity.
They need to collect revenue, and that’s why you’re required to begin taking regular periodic distributions starting on April 1 of the calendar year in which you reach age 70-1/2.
Being aware of the 401K withdrawal rules can save you from making costly mistakes.
A 401K withdrawal is different from a 401K loan, which has its own set of rules and restrictions.
There are four main types of 401K withdrawals: Here are the rules for each of these four kinds of 401K withdrawals: In order to discourage you from taking early withdrawals from your 401K plan, the IRS imposes a 10% early withdrawal penalty if you are younger than 59-1/2.You may take a hardship withdrawal (if your employer permits it) to cover certain expenses, such as: In order to qualify to take a 401K hardship withdrawal, you’ll need to show your employer financial proof that you need to take money out of your 401K.The alternative is to “self-certify,” which doesn’t require you to disclose your finances.However, you won’t be able to make new 401K contributions for six months after taking the withdrawal.Contact your human resources or personnel department to see if they allow hardship withdrawals and what you must do to qualify.Learn about a safe and flexible 401K alternative that gives you flexibility, control and guaranteed growth of your retirement savings.