What is the penalty for cashing out a 401k? In this economic turmoil, we are all worried about maintaining the safety of our jobs, keeping our house, and feeding our families. Trying to make money stretch is most important. We save money the best we can by reusing everything in the house or sending our families out to work and school with homemade lunches. And even by doing our best to save money it still does not seem enough. Searching elsewhere we look to our banking accounts and it may seem that taking money out our retirement plans is possibly the best option to our current financial crisis or problems. But it is important to know: what is the penalty for cashing out a 401k retirement plan before the appointed time. When you know the rules that surround the retirement plans it will help you better make a choice that will enable your to make the right financial path to assist your needs. Realize that there are also exceptions to the penalty so that you do not in every case have to pay the fines associated with early withdrawal.

So what is the penalty for cashing out a 401k? There are not any penalties if you do not start distributions from your retirement fund until you are exactly fifty-nine and a half years old. If you’re only fifty-nine and a quarter years old, you will receive penalties if you try to cash out your 401k. Now the penalties are effective for all retirement plans which include 401k, 403b, IRAs, occasionally Roth IRAs, and SIMPLE IRAs. If you receive distributions from your retirement plan before the appointed or set time, you will have to pay a ten percent penalty. This means that you are not only taxed on the money but you have to pay an additional ten percent taxes on it as well. For the SIMPLE IRAs, watch out for their penalty as it rises to a twenty five percent tax. Depending on the circumstances around the Roth IRA, you might be penalized the ten percent additional tax. That should answer the pending question of what is the penalty for cashing out a 401k.

There are of course exceptions to the rule, but those do not cover just anyone. The exceptions deal with enormously large medical bills, death or disability, court mandating withdrawal of 401k through divorce decrees and separation agreements, or early retirement and or leaving a job early after the age of fifty five. If any of those exceptions apply, it is encouraged to see if those exceptions fit or meet your current situation, therefore allowing you to access the money without consequence.

Now that you know what is the penalty for cashing out a 401k you can determine what option will be best for your current financial problems. Maybe your effort and hard work to save money will have to be enough for your family, and maybe you can access your money having it be worth the penalty. Either way knowledge is power.