Understanding The Process Of 401k Withdrawal

A 401k withdrawal is a process in which the capital held in an existing 401k plan is taken out or transferred. Though designed as a retirement investment plan, a situation may come about prior to retirement whereby access to the funds is needed. Depending upon age, there are a number of options that are associated with a 401k withdrawal.

Those account holders who would like to remove the funds prior to reaching fifty nine and a half years old are entitled to withdraw the full balance of their 401k in a single lump sum. When this option is chosen, the provider of the account will hold back a certain percentage so as to pay the required taxes. There would also be an extra percentage retained by the administrator which is a penalty charge levied due to removing the funds before reaching retirement age.

Individuals aged between fifty nine and a half and seventy years old can also withdraw the full balance of their 401k plan in a lump sum. There would be a certain percentage of the capital kept back to pay necessary taxes but there should be no penalty charge made for removing the capital. The money that is held on to by the administrator to cover taxes can also be counted towards the tax debt in the current period.

People of all ages who have a 401k account have other options apart from a straight withdrawal. For example, if considering removing the capital due to a change of employer you should understand that you have the option of leaving the existing plan in place, but to do so there should be a minimum balance kept in the account.

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Another option that may be preferable than withdrawing all the cash is to transfer the balance to a new plan, for example an IRA, Individual Retirement Account. If this is of interest to you, you will need to understand the difference between a traditional IRA and a Roth IRA as both have certain terms and conditions attached.

Before coming to any decision on a 401k withdrawal, you should find out whether there are other avenues you could go down that would allow you access to the amount of money you require at this stage in your life. Perhaps you would be better off in the long term availing of a home equity loan, this may work out more favorably as opposed to using up your retirement savings.

Even a zero per cent credit card may present you with a line of credit that can be used to cover any emergency payments that are due, such as mortgage arrears or medical bills.

You may find it useful if you talk to an investment plan advisor before taking a new course of action. They should be able to analyse your situation professionally and put forward a plan of action that would allow you to reduce the amount of financial loss that may occur. Withdrawing the funds from a 401k plan should not be a decision that is taken lightly or quickly.

Published by

Michael Brown

Michael Brown

Retirement planning expert and rollover IRA to gold adviser.