If you are having your 401(k) employees saving account for the retirement, then it is excellent decision to have this account, but you should also understand how to manage it and don’t get yourself indulged in unnecessary taxes.
In this articles will see the ways how you can withdraw the money from your 401(k) account.
When you have planned to take money out from your 401(k) account then you should consider these three things:
- You age at the time of withdrawal.
- Have you changed your employment which is still contributing to your 401(k) account?
- Rules mentioned in your 401(k) plan.
Ways You Can Withdraw Money From Your 410(k) Account when You Are No Longer Employed There
It may always be possible that you are the no longer employee of the company who has sponsored your 401(k) plan, in this situation it is always advisable to get in touch with your 401(k) plan administrator.
You can also get in contact over the phone through the number given in your 401(k) plan statement, and your next step will be to ask them for paperwork and ask for the suggestions to withdraw the money out of your 401(k) plan.
You won’t be able to borrow money in the form of a loan from your 401(k) account as you are no longer employed there, or take a hardship withdrawal. So, in this case, you can either opt for the distribution or rollover your 401(k) account to an IRA.
Any amount of money which you plan to withdraw from your 401(k) account will be into following categories, and every category is having their different tax rules related to them:
Standard or Regular 401(k) Withdrawal:
It is the scenario when you have planned to withdraw money from your 401(k) account but you are no longer working with the employer who has sponsored your 401(k) plan, and you are have achieved the age of 59 1/2.
In some cases it is applicable when you have achieved the age of 55, so as long as you are 55 or over when you have taken retirement from that employer.
If you withdraw the amount from your regular 401(k) account, you will need to pay the related income taxes on the amount which you withdraw, but there will not be any penalty incurred.
Early 401(k) Distribution:
It is the scenario which will be applied when you have not yet attained the age of 59 1/2 years and don’t qualify for the normal age of 55 withdrawals as well, and above that, you are not also working with the employer who has sponsored your 401(k) plan.
In this case of withdrawal, you will need to pay the taxes on the amount which you have to withdraw and also the penalty at the rate of 10% on the money withdrawn from your 401(k) plan as an early distribution.
Rollover to IRA From Your 401(k) Plan:
It is also the right withdrawal method in which you can rollover your 401(k) account balance to an IRA account as per the company which you prefer.
In this case, you don’t need to pay any taxes if you opted to roll over to an IRA account, and you can use that money in your later period when you need it from your IRA account.
In future, you can withdraw only that much amount which is required to you, and you have to pay taxes only on that amount.
Your IRA account also gives you the option to use the special rule called 72(t) payments in which you can take money out at an early stage and can also be safe from any early withdrawal penalty tax over it.
Ways to Make Money out of Your 401(k) Plan when you Are Still Employed In The Company
In some of the 401(k) plans you are not allowed to withdraw the money, in case you are still working in the same company. But some other choice you can enjoy other plans like – 401(k) loan, hardship withdrawal or in-service distribution.
Most of the 40(k) plan allows you to take out the money from your account in the form of 401(k) loan which will enable you to borrow against the amount you are having in your 401(k) plan.
The maximum amount of loan which you can borrow must be below $50,000 or half of your vested amount balance.
But it is advisable that all 401(k) plan now allow you to take a loan, to know about 401(k) in details you should contact your 401(k) plan administrator or call the number given in your plan statement.
Hardship Withdrawal With 401(k) Plan:
In some of the 4019k, plans you can take the amount out in the form of hardship withdrawal if your situation is as per hardship withdrawal provisions, but again all of the 401(k) not allow you to employ this option.
You should again ask your 401(k) plan administrator or call the number given in your statement to check whether it is allowed in your case or not.
Few of the 401(k) plan allows you to withdraw or take out the amount of your plan in the form of ‘in-service distribution’ if you are still working with the company.
Although all 401(k) plans will not allow you to employ this way to take money out. Just contact your 401(k) plan administrator or call the number given in your statement to know more about your 401(k) account and this way of withdrawal.
In Case Your Are Beneficiary of 401(k) Plan How To Take Out The Money
If you are the beneficiary of the 401(k) plan, then you should understand the rules which apply to take the money out of your plan which is a little bit different as mentioned above.
Your withdrawal choices will depend upon that you are the spouse of 401(k) plans participant or non-spouse and whether the plan participant was of age 70 1/2 or not.
Using and applying this rule will be beneficial to you when you need to withdraw the amount as a 401(k) plan beneficiary.
Photo by Abigail Keenan