If your employer has offered a 401k plan for you to invest in for retirement, you may have found it easy to save and invest for your financial future. 401K plans are efficient, tax-advantaged accounts to grow and preserve your nest egg.
Many investors have questions when it comes to the specific rules and regulations concerning withdrawals and the taxes and possible penalties they may have to pay on their funds. “When can I withdrawal from my 401k without paying a penalty?” and “when do I have to take money out of my 401k” are the two most common questions, as failure to comply with IRS rules concerning these transactions carries the steepest penalties.
For up-to-the-minute information concerning the IRS rules and regulations governing 401k accounts, check out the Retirement Investing and Planning Center at online broker ETrade. Always consult with a trained financial adviser before withdrawing any funds from a retirement account.
When Can I Withdrawal From My 401k Without Paying A Penalty?
You can begin taking distributions from your 401k account without paying any penalties when you turn 59½ and retire from your job. If you lose your job for any reason, become disabled, or suffer a severe financial hardship may also access your 401k funds penalty-free.
Be prepared to prove any medical reason or financial hardship when attempting to make a penalty-free early withdrawal. Any unqualified withdrawal from your 401k account will be subject to both your personal income tax rate as well as an additional 10% penalty.
If you are in need of funds for a medical or financial emergency, consider a 401k loan in lieu of a withdrawal from your account. While a loan may not be ideal either, it can be considerably less damaging than a withdrawal. Consider all possible options before withdrawing money from your 401k account.
When Do I Have To Take Money Out Of My 401k?
When do I have to take money out of my 401k? The funds in your 401k account are designed to be used when you retire, and the IRS requires you to begin taking Minimum Required Distributions when you turn 70½.
Responsible for insuring that the funds in a 401k account are used in retirement, the Internal Revenue Code dictates that the owner of a 401k account takes their Minimum Required Distributions – or MRD – as soon as they turn 70½ years old.
If you have already turned 70½, you can begin taking your MRD beginning April 1st. If you turn 70½ after April 1st, you must begin receiving your Minimum Required Distributions beginning the following year.
When you have met the criteria for receiving your Minimum Required Distributions, it is advised that you withdrawal your MRD every year on or prior to December 31st. Failure to do so may result in a penalty of up to 50% of your Minimum Required Distribution payment.
Check with your plan’s specifics regarding additional requirements for MRDs including employment status at the time of withdrawal.
For more information on withdrawals from your 401k account, as well as Minimum Required Distributions, contact the experts at online broker ETrade.
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