Your 401k is your retirement plan. It will be your main source of income when you grow old and become incapable of working for your own. To take out money from your 401k you need to be at least fifty nine years and six months old. This is the retirement age in the United States. At this age you’ll be taking your retirement money without any costs or penalties. You will be forced to take out money by the time you reach the age of seventy. However you can cash out your 401k prematurely although there are certain fees and penalties to cover. Here is a look at the different conditions you could fall under:
How Much Does It Cost?
You can take out a loan from your 401k. Your loan is limited to either 50% of your account or $50,000, depending on which is less. When you take out a loan for a valid reason such as for educational purposes, medical emergencies or bankruptcy you won’t be fined with any penalty or taxes. You will have to repay the loan in a matter of five years and there will be a minimal interest fee charged on your payments. The interest does get added to your total account so it counts as extra cash on your retirement. If you need to cash out your 401k prematurely then you could hit costs that will charge off 30-45% of your total account savings. There is approximately 10% that will charged as a penalty for withdrawing or cashing out early and then roughly 30% (depending on your company) in taxes. You could lose out a lot of money if you decide to cash out your 401k prematurely but when times are tough you may have no other choice and this will be the total fee you’ll be paying. This is not always the case. As mentioned, you are allowed to either take out a loan or cash out your 401k if you have medical needs or if you want to further your career by going back to college. Under these guidelines you can take out cash from your retirement savings without paying penalties.
Cashing Out Your 401K is a Last Resort
Cashing out your 401k early is a last resort for anyone, no matter their financial condition. This saving account is to serve as your source of income when you are too old to work and when nobody is there to support you. You will be working your entire life to create a stable retirement account. If you do need to take out money then always try to go for a loan first. The interest is not going to be immediately added to your account until the entire loan is paid but that is still additional funds later on and you can avoid paying all of the penalties. Cashing out prematurely should be your last option if getting out a loan is no longer a viable option. You lose out approximately 40% from your entire retirement account so you won’t really be getting that much money in the end.