If you withdraw from your 401k before age 59 you typically face:
A 10% Early Withdrawal Penalty The IRS imposes this penalty on the amount withdrawn.
Income Taxes: The withdrawn amount is taxed based on your ordinary tax income bracket.
Here are some ways to access your 401k funds with without the penalty:
- 401(k) Loan
You can borrow up to 50% of your vested balance up to $50,000
You must repay in five years (longer if used for a primary home).
- Hardship Withdrawal (Penalty-free in some cases) certain financial hardships qualify like medical expenses, funeral costs, home purchase or eviction prevention.
While penalties may be waived some taxes may still apply.
- Rule of 55
If you leave your job at age 55 or later (50 for some) you can withdraw from your current employer’s 401(k) package penalty free.
4. Substantially Equal Periodic Payments (SEPPs)
Allows withdrawals before age 59.5 if you follow an IRS approved withdraw schedule for at least five years until age 59.5, whichever is longer.
5. Roth 401(k) Contributions
You can withdraw your contributions (not earnings) tax and penalty free and any time.
// Check with your accountant to learn more about how to avoid penalties or contact our office if you need help with multiple years of tax filing at 443.741.4188 or click here and view our services page .
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