Withdrawing money from a 401(k) retirement plan before the age of 59 1/2 results in early withdrawal penalties. This penalty is 10% of the amount withdrawn and income tax. Assuming you already work and withdraw money from 401(k) early, you will be hit be placed at a higher tax bracket.
However, there are ways you can work around the early withdrawal penalty. If you lose or leave your job at the age of 55 or later, you will dodge the 10% penalty. Also, if you withdraw early to satisfy a financial need, you can do it without paying the 10% early withdrawal penalty but will have to pay income tax.
This is known as hardship distributions. For this, you can contact the retirement account provider and get the amount you need without being subject to the early withdrawal penalty. To learn more about this, it is best to contact your retirement account provider.
Retirement Plan Loans
Another way you can withdraw money from your 401(k) retirement plan without paying an early penalty is the retirement plan loans.
A retirement plan loan is basically you withdrawing money from your retirement plan and putting it back later on. As long as the loan meets the rules and you make your payments on time, the money won’t be taxed. In addition to this, getting a retirement plan loan is quite easy as a plan sponsor isn’t required to include loan provisions in the plan.
Although it isn’t directly related to this, it is good to keep in mind that only 401(k), 403(b), and 457(b) plans offer these loans. If you have an Individual Retirement Account (IRA), you won’t be able to get loans as it isn’t offered. Same as hardship distributions, it is best to contact your retirement plan provider to see whether or not you can get loans. If so, the amount of the loan you can get.