Genre: Instruction

The IRS has allowed tax benefits to people by way of the 401k for many years now . That 's why 401k plans have become the largest employer-sponsored retirement account type . If you are looking for rules for 401k distributions , you have either reached time to retire or want to tap the 401k for some much needed money . Regardless of the reason , you should be careful to abide by the 401k distribution rules , which are different for early 401k withdrawals and those made at the age 591 ⁄ 2 or older . As for early 401k withdrawals , they have the likelihood of causing two taxable situations on the individual's tax return . Aside from paying Federal income tax on the sum withdrawn , an early withdrawal in most cases also causes penalties of 10 % on the distribution sum . However , there is a 401k hardship rule , also applied to 403b plans and 457 plans , which makes allowances for early 401k withdrawals in certain situations . They include expenses for medical care , costs of the purchase of a principal residence , educational fees , funeral expenses and certain repair expenses . Do not forget that the abovementioned exceptions just specify conditions when you may get access to your 401k assets , but not represent exceptions to penalties or tax . The penalties wo n't apply if distributions before reaching age 591 ⁄ 2 are effected in the certain situations . They include payments made to the beneficiary in result of the death of the participant , disability of the participant , and a number of others . Meanwhile , you have to realize that although the IRS makes provisions for early distributions , it may happen that your employer's plan does n't allow premature distributions because of the added costs incurred . We remind that a 401k withdrawal penalty wo n't apply to participants who separate service from their employer in or after the year of turning 55 ( in the meantime , for qualified public safety employees that age is 50 ) . Since 401k distribution rules provide that you can start taking a 401k early withdrawal after turning 55 only from your current employer , it makes good financial sense to roll older 401k 's into your current employer before getting retired . If your want to withdraw 401k assets at retirement , you can choose from three options , assuming that you 're at least 591 ⁄ 2 and no longer employed : take a lump sum , leave your plan assets with your employer , or rollover 401k to IRA . 1 Trackbacks For This Post