Q: When can I withdraw money from my 401k retirement plan?

A: In many ways that is a very complex question; lots of financial experts make lots of money answering it. Aside from the regulations and rules dealing with the 401k withdrawal penalties, you can access the money of your 401k retirement plan as soon as you retire. The government has stipulated this age to exactly fifty-nine and half years old. You cannot access the money if you are only fifty-nine or only fifty-nine and three months old. It is imperative to exactly the retirement age otherwise you will suffer the severe penalty of early withdrawal.

Q: What are the 401k withdrawal penalties?

A: The 401k withdrawal penalties are only given when you take money out of your 401k early. The early withdrawal penalty is an additional ten percent tax on the money you take out. To fully understand this you must know that when the money was deposited in the account that it was not taxed. Upon taking the money out, even at the retirement age, you will be taxed on the money. The 401k withdrawal penalties are an additional ten percent tax on top of the normal taxes. For example you take about ten thousand dollars from your 401k plan and you are in twenty eight percent tax bracket. Then you would pay about two thousand and eight hundred in federal taxes. And for the ten percent penalty, you would pay an additional thousand dollars, leaving you with six thousand and three hundred dollars.

Q: What are hardship withdrawals?

A: Hardship withdrawals are a special way to allow you to access the money in your 401k retirement plan to pay for certain things. No, you cannot take money out of your 401k plan just to buy a new car or go to Europe. That’s only good with student grants. (Just kidding!) The money is only allowed to be withdrawn for circumstances such as losing your house, paying for college tuition, and large expensive medical or funeral bills. Stop dreaming about Fiji; it isn’t going to happen. And yes the 401k withdrawal penalties still apply to the hardship withdrawals.

Q: How do I apply for hardship withdrawal?

A: You must submit to your company’s financial planner or human resource director to find out which way they will have you apply for hardship withdrawal. One way is that you must show proof of your hardships. The second is self-certification that won’t allow you to put money into your 401k plan for six months.

Q: What are the exceptions to the penalties?

A: There are a number of exceptions; they are as follows. One the death or disability of the participant of the 401k plan. Secondly, medical bills that is over seven point five percent of your adjusted gross income. Upon early retirement at the age of fifty five, or leave your job early is the third exception. Fourth, when it is mandated through divorce agreements and separation decrees. And lastly, agreements that offer distribution throughout the participants lifetime due to being laid off.