401k retirement plans are the most well known way to save for your golden years. With the way the system is set up, American workers stand to gain the most by making regular contributions to their plan and not taking out any money until they are older than fifty-nine and a half. By leaving your money alone until you have reached retirement age you are fulfilling the purpose of the 401k retirement plan. Taking money out earlier is not what the plan was designed for and so there is usually a financial cost for doing so.
The standard withdrawal from a 401k retirement plan occurs when an individual has reached the age of 59 and a half or over. Once this milestone has been reached, the government will not impose an early withdrawal penalty of ten percent on whatever you take out. The 401k accounts are there to provide Americans with money when they retire, and the tax breaks that are involved are only available for those who use the account for retirement purposes. If money is withdrawn earlier, then there will be penalties.
Though 401k retirement plans are just that, for retirement purposes, it is understood that sometimes people will run into financial difficulties over the course of their lives that can only be solved by having access to the funds in their 401k account. It is not something the plan is particularly designed for, but the government will sometimes accept a hardship withdrawal from your 401k in certain situations. You really have to demonstrate that those funds are all that you have and that there is an immediate and pressing need to have access to a significant amount of money in order to avoid a bad situation. Usually, a 401k withdrawal because of a hardship is allowed in cases where the loss of property could occur.
There are a few other withdrawals that can be made from your 401k investment account before you actually retire that will not necessarily incur penalties. Most of these situations are special exceptions, such as when you die and the money from your 401k is distributed to your beneficiaries or your estate; when you have medical expenses that are more than 7.5 percent of your gross income; or when distributions are made to the IRS to pay for any levy that may be on the plan.
There is no point in saving a lot of money in your 401k retirement plan and then losing some of the profit you have made by making an early withdrawal. The plan is there for retirement purposes, not for any other reason. In the event that you have to have access to funds to prevent a worse financial situation, talk to a financial advisor to see what options may be available to you to avoid penalty fees.
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