401k And Early Retirement  

       401k is a type of retirement plan where the employee contributes to fund. Very often the employer makes matching contribution to this retirement fund. One of the reasons why people are attracted to 401k is because the contribution made by a person is from pre-tax salary and the money can grow tax free. The person has to pay tax at the time of withdrawal.

      However, you must be wondering what happens to your 401k if you take early retirement. If you retire before reaching the age of 59 1/2 , and you begin to withdraw from your 401k retirement savings, you will have to pay a penalty of 10 percent on each withdrawal. The idea behind imposing a penalty is to prevent people from taking money before reaching retirement age.

        However, you can avoid paying the penalty in certain cases. This means that you can withdraw money from 401k plan without any worries.

  • If you leave your job on or after your fifty-fifth birthday. Usually you would have to pay a 10 percent penalty for early withdrawal. However, if you retire, quit or get fired at the age of 55 or later, you can withdraw the money from 401k as part of early retirement without incurring any penalties.
  • If you have substantial equal periodic payments you can withdraw money from your 401k without worrying about the age factor. You have to realize that the payments into your retirement plan should be substantially equal and be based on your life expectancy. Once started, the payments have to be made for 5 years or until you attain the age of 59 1/2, depending on which is longer.
                                                                           Before you start thinking about early retirement and withdrawing money from 401k retirement plan, make sure you take all possible situations into consideration including the penalties that might be imposed on you for withdrawing the money.

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