Being aware of the 401K withdrawal rules can save you from making costly mistakes.
If you're cashing out a 401(k) after age 59.5, you will not have to pay the 10 percent penalty.Tim Grant has been a journalist since 1989 and has worked for several daily newspapers, including the Charleston "Post & Courier," the "Savannah News-Press," the "Spartanburg Herald-Journal," the "St.A penalty-free withdrawal allows you to withdraw money before age 59-1/2 without paying a 10% penalty. You will still have to pay taxes at ordinary income-tax rates.You may qualify to take a penalty-free withdrawal if you take a distribution before age 59-1/2 and meet any of these situations: Get instant access to a FREE 18-page Special Report that reveals a Safe and Flexible 401(k) Alternative, that lets you access your retirement savings when you want – with no restrictions or penalties.Cashing out a 401(k) can be a tempting idea, especially if you are facing financial difficulties or need to raise money for a major purchase.
But even though the money in the account belongs to you, it is subject to certain rules and restrictions due to the tax advantages it provides account owners.
Loan repayments can, however, be extended to 10 years if the loan is used to make a down payment on the worker's primary residence.
If you cash out a 401(k) before reaching 59.5 years of age, your employer is required by the IRS to withhold 20 percent of the distribution, and you will face a 10 percent penalty for the early withdrawal.
One of the rules related to cashing out a 401(k) relates to the employment status of the account owner.
You are allowed to cash out a 401(k) while you are employed, but you cannot cash it out if you're still employed at the company that sponsors the 401(k) that you wish to cash out.
Contact your human resources or personnel department to see if they allow hardship withdrawals and what you must do to qualify.