President Biden on December 29 signed the $1.7 Trillion spending bill into law. There are 4 new changes to the IRA & 401K withdrawal rules you should be aware of.

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LEARN MORE ABOUT: 401k Plans

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When it comes to planning for retirement, many people opt to save through a Roth 401k account. A Roth 401K is a retirement savings account that allows individuals to contribute after-tax income, meaning that withdrawals in retirement are tax-free. While this can be a useful tool for saving for retirement, there are a few important rules to be aware of when it comes to making early withdrawals.

One of the key benefits of a Roth 401K is the ability to withdraw contributions at any time without penalty. This is because contributions are made with after-tax income, so there are no tax implications for withdrawing these funds early. However, things get a bit trickier when it comes to withdrawing earnings from a Roth 401k account.

In general, the IRS requires individuals to be at least 59 and a half years old in order to make penalty-free withdrawals from a Roth 401k account. This means that if you withdraw earnings from your Roth 401K before this age, you may be subject to a 10% early withdrawal penalty on top of any income tax owed. This can significantly reduce the amount of money you have saved for retirement, so it’s important to carefully consider the implications of early withdrawals.

There are some exceptions to the early withdrawal penalty, such as in cases of disability or for certain medical expenses. However, these exceptions are limited and may not apply to all individuals. It’s also important to note that any early withdrawals from a Roth 401k account may impact the growth of your retirement savings over time. By withdrawing funds early, you are missing out on the potential for compound growth in your account.

If you are considering making an early withdrawal from your Roth 401k account, it’s important to speak with a financial advisor to fully understand the implications of your decision. They can help you determine if there are any alternative options for accessing funds, such as taking out a loan against your account or exploring other sources of income.

In conclusion, while a Roth 401K can be a valuable tool for saving for retirement, it’s important to be aware of the rules and potential consequences of making early withdrawals. By carefully considering your options and speaking with a financial advisor, you can ensure that you are making the best decisions for your financial future.