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401k Question
- Thread starter Ilmater
- Start date
Is there a penalty for withdrawing from my 401(k) plan account?
There can be, depending on your age and retirement status when you withdraw. Generally speaking, you will be assessed a penalty equal to 10 percent of the taxable amount of your withdrawal if you withdraw money before you reach age 59 1/2. There are some instances when you may not have to pay a penalty. Keep in mind that you must pay income taxes on all withdrawals of taxable money, unless you directly rollover the eligible money to another employer-sponsored plan or to an IRA. If you choose to take a withdrawal, 20 percent of the taxable portion of your withdrawal will be withheld. (You may owe more or less than this amount when you file your income taxes, depending on your tax bracket.)
As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, hardship withdrawals are not eligible to be rolled over, and are not subject to a federal income tax withholding. You may still owe income taxes and a possible 10% early withdrawal penalty if you are under 59 1/2 when you file your annual income tax return. State and local taxes may also apply. Please note: You should consult your financial/tax adviser with specific questions about your personal situation if you are considering a withdrawal from your plan account.
There can be, depending on your age and retirement status when you withdraw. Generally speaking, you will be assessed a penalty equal to 10 percent of the taxable amount of your withdrawal if you withdraw money before you reach age 59 1/2. There are some instances when you may not have to pay a penalty. Keep in mind that you must pay income taxes on all withdrawals of taxable money, unless you directly rollover the eligible money to another employer-sponsored plan or to an IRA. If you choose to take a withdrawal, 20 percent of the taxable portion of your withdrawal will be withheld. (You may owe more or less than this amount when you file your income taxes, depending on your tax bracket.)
As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, hardship withdrawals are not eligible to be rolled over, and are not subject to a federal income tax withholding. You may still owe income taxes and a possible 10% early withdrawal penalty if you are under 59 1/2 when you file your annual income tax return. State and local taxes may also apply. Please note: You should consult your financial/tax adviser with specific questions about your personal situation if you are considering a withdrawal from your plan account.
There are only a couple of situations where the IRS will waive the 10% early withdrawal penalty.
* Your un-reimbursed medical costs exceeds 7.5% of your income and you made the withdrawal to pay for these expenses.
* There is a Qualified domestic Relations Order (QDRO) from the courts that mandate funds from your account go to a former spouse, child, or dependent.
* You have separated from service and were at least 55 years of age when you did so (or separated from service in the year in which you turned 55).
* You have elect a Section 72(t) distribution.
* You are totally disabled. (The key to the disability exception seems to lie in the permanence of the condition, not the severity. Therefore, to claim this exemption you have to furnish not only information proving that you are totally disabled, but also information on the permanence of the disability.)
* You have died and your beneficiary gets the money.
* Your un-reimbursed medical costs exceeds 7.5% of your income and you made the withdrawal to pay for these expenses.
* There is a Qualified domestic Relations Order (QDRO) from the courts that mandate funds from your account go to a former spouse, child, or dependent.
* You have separated from service and were at least 55 years of age when you did so (or separated from service in the year in which you turned 55).
* You have elect a Section 72(t) distribution.
* You are totally disabled. (The key to the disability exception seems to lie in the permanence of the condition, not the severity. Therefore, to claim this exemption you have to furnish not only information proving that you are totally disabled, but also information on the permanence of the disability.)
* You have died and your beneficiary gets the money.
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