In fact, your 401(k) retirement savings plan may be more than that. Some people still do not know all the different possibilities it may offer them. It is essential to have a 401(k) plan for your retirement. However, you may end up using it even before you retire. If this is the case, you must be aware of the fact that IRSmay want to have some taxes from it too.
Thus, it would be wise to know the conditions in order to avoid wasting your money. Withdrawing your money from your 401(k) retirement plan may not be as wise as you may think. But it is true, that on some certain occasions you must do it and it is the best and only solution to your personal situation. As you make contributions, in general, you do not have to pay taxes.
Nonetheless, sooner or later you will have to pay taxes since they are usually postponed to your retirement. Apart from saving money, 401(k) retirement plans allow you to spend less money on taxes in the long run. Money that comes out of your 401(k) plan early usually implies 20% of this amount on taxes for the IRS. Let’s imagine you are about 40 years old and you take out $5,000, you might just get $4,000.
What is the IRS penalty for getting money from my 401(k) retirement plan before age 59½?
The penalty is usually 10% and this will take place once you file your tax return. So, if you first got $4,000 out of $5,000, you would just get $3,500. Because you are paying $1,500 on taxes and penalties altogether. Remember that the ten percent of $5,000 is 500. So, do you think this is good business for you? Moreover, you will have less money for your future, even more, if the market is not high the moment you get that money.
There are very many exceptions that you may be eligible for, so you had better check them with an expert if you have not got the foggiest idea about it. This penalty could disappear if you meet any of these requirements. For instance, you do not get the money you withdraw from your 401(k) in a lump sum. So, you get it over time. Furthermore, you may get an exemption for proving a hardship and getting the distribution with the plan administrator.
You could also get it if you have just divorced or quit your job at a specific age. Adopting or having a child allows you to do so too. Having a disability as well. In addition, you may want to change it to a different retirement account or may want to pay IRS debts. Medical emergencies, deaths, suffering a disaster, giving more contributions to your 401(k) or you were in the military may allow you to get it for free.