Are you saving for retirement but need access to your 401(k) plan contributions sooner than expected? Withdrawing your 401(k) funds before the age of 59 \u00bd may result in penalties; but there are some instances in which you can avoid them. Whether you’re close to retirement or need access to money, this guide will help you understand your options.<\/p>\n\n\n\n
A 401(k) distribution is money taken out of an employee-sponsored retirement account. You can begin to take these distributions starting at the age of 59 \u00bd without penalties. However, you\u2019re required to take minimum distributions by the age of 73. 401(k) distributions are typically taxable earnings, and the tax amount is determined by your tax bracket.<\/p>\n\n\n\n
Taking money out of your 401(k) before the age of 59 \u00bd can result in penalties. The IRS may impose a 10% penalty for withdrawing before the age of 59 \u00bd.<\/p>\n\n\n\n
There are instances in which you can make early withdrawals and avoid facing penalties, including but not limited to:<\/p>\n\n\n\n
*distribution option which may not be available in all plans<\/p>\n\n\n\n
A 401(k) loan occurs when you borrow money from your own 401(k) and pay it back through scheduled payroll deductions. The maximum re-payment period for 401(k) loans is five years, but you can extend it if you\u2019re looking to purchase your first home with the funds.<\/p>\n\n\n\n
Unlike traditional bank loans, 401(k) loans are generally easy to get with no credit check. You\u2019ll paying the interest on the loan (determined by the plan administrator) back to your own 401(k),. Plus, if you borrow against your own money and pay back the loan in a timely manner, you will not be subject to additional income taxes.<\/p>\n\n\n\n
Though a 401(k) loan may seem like a great solution for obtaining necessary additional income, there are a few possible drawbacks to consider:<\/p>\n\n\n\n
While 401(k) plans are typically meant for retirement purposes, sometimes a need a arises that requires you to withdraw the funds sooner. Whether you\u2019re considering taking out early distributions or a 401(k) loan, it\u2019s important to weigh your options and the potential drawbacks.<\/p>\n\n\n\n
For more information on 401(k) distributions, please visit the ePlan Services help center<\/a>.<\/p>\n\n\n\n\n