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LEARN MORE ABOUT: 401k Plans

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A 401k is a retirement savings plan that offers tax incentives to encourage workers to save money for their future. The plan allows you to contribute pre-tax dollars, which means you don’t pay taxes on the money until you withdraw it during retirement. However, there are times when you may need to access the money in your 401k before you retire. Here are some ways to take money out of your 401k.

1. Loans

If your 401k plan allows loans, you may be able to borrow up to 50% of your vested balance or $50,000, whichever is less. You’ll need to pay back the loan with interest within five years, unless you’re using the funds to purchase a primary residence. While loans from your 401k plan provide a quick source of cash, there are some drawbacks. Repaying the loan may reduce your future retirement savings, and if you leave your job, you may need to pay back the loan in full immediately.

2. Hardship withdrawals

If you’re facing a financial hardship such as a medical emergency, funeral expenses, or foreclosure, you may be able to take a hardship withdrawal from your 401k. However, you can only withdraw the amount necessary to cover the hardship. You’ll also need to pay taxes on the amount you withdraw and may face a 10% penalty if you’re under age 59 and a half.

3. In-service distributions

If you’re over age 59 and a half, you may be able to take distributions from your 401k plan while still employed. However, not all plans allow in-service distributions, and they may be subject to taxes and penalties if you withdraw the funds before age 59 and a half.

4. Rollovers

If you separate from your employer, you may be able to roll over your 401k plan into an IRA or your new employer’s retirement plan. Rolling over your 401k plan into an IRA can provide more investment options and greater flexibility in how you access your money. However, you’ll want to compare fees and account minimums before making a decision.

5. Required minimum distributions

Once you reach age 72, you’ll need to start taking required minimum distributions (RMDs) from your 401k plan. The amount you must withdraw each year is based on your age and the value of your account. RMDs are subject to taxes, so it’s important to plan for these withdrawals as they can impact your tax liability.

In summary, there are several ways to take money out of your 401k, but it’s important to consider the long-term impact on your retirement savings. Loans and hardship withdrawals may provide short-term relief, but can reduce your future retirement savings. In-service distributions and rollovers offer greater flexibility, but may be subject to taxes and penalties. Planning ahead and consulting with a financial advisor can help you make the best decision for your financial future.