For those of you who are interested in scraping together some extra money during this economic tumult, here is all you need to know about the 401k withdrawal penalties. True, it may be a current popular notion around the block, but before you jump in and start pulling money from your retirement fund it would be worth it to look into the different 401k withdrawal penalties and regulations. Sure extra money right now sounds great, but is it really worth it? And that is the question you need to ask yourself and calculate before you jump into action.

The 401k withdrawal penalties will not affect you if and only if you reach the legal age of retirement. According to the laws the land, the legal age of retirement is that of fifty nine and half years old. This means that you cannot access your 401k retirement plan before that exact age. If you do so, you will have to pay the early 401k withdrawal penalties. The penalties are for not only the 401k plan but the 403b plan as well. It is a ten percent additional tax. This means that when you pull your money out of the 401k retirement plan that you pay regular taxes on the money and then an extra ten percent tax for the early withdrawal. It is a way to discourage people from taking out their money and spending their retirement funds.

Although you will be subject to the penalties, there are a few reasons that the government and your employer will allow you to withdraw money from your 401k plan. You will have to submit the evidence and proof concerning these reasons, or suffer a penalty of not being able to put money into your 401k for six months. These reasons are often referred to as hardship withdrawals. They include circumstances such as paying your mortgage to avoid foreclosure, paying enormous medical or funeral bills, paying for returning or first time college tuition, and other crucial home repairs. For these reasons you can dip into your 401k retirement plan. But as stated earlier, you will still have to pay the penalties.

There is only one way to be free of the 401k withdrawal penalties and that is if you fall into the exceptions category. There are five exceptions to be exact. The first deals with being laid off and agreements made about receiving a distribution of money throughout your lifetime from your 401k account. Second is that upon the death or disability of the participant the money in a 401k account is available. The third deals with court mandated withdrawals from divorce decrees or separation agreements. Fourth is that your medical bills are seven point five percent of your adjusted gross income. And fifth, at the age of fifty-five you retire early or leave your job. These are the exceptions to the penalties.

Now that you have a bit of the guidelines, rules and regulations of your 401k retirement plan in mind, you can make the best decision.