Can I take money out of my 401(K)??

Question

im 22 and have been putting money in it now for a little over 2 yrs - i don't really need to take money out, but i do need some info and how all this 401-k works...

Answer 1

There are two things you can do. You can withdraw it early, but you will pay a penalty on it and you will pay taxes on it, because when you put it in, it was tax free. The other thing you can do is borrow against it. Most 401k plans let you borrow up to half the value of it, and then take a portion out of your paycheck for however long you agree to until the debt is paid. That is how my wife and I got the downpayment for our first home.

BEST ADVICE - DON'T TOUCH THAT MONEY UNTIL RETIREMENT. I know PLENTY of baby boomers with NO retirement because they took that money out for STUPID reasons.

Answer 2

A 401(k) is designed to be a retirement account. Under IRS rules, you cannot remove money from the account prior to turning age 59 1/2 or else you will incur a 10% IRS penalty on the funds removed. There are a few exceptions to this rule, but they will not apply to you at age 22. Loans are not available on all 401(k)'s and when they are, they are generally limited to hardship or a first home purchase.

Since you are putting the money in pre-tax, it will become taxable on a dollar-for-dollar basis when it is removed. The entire concept of the pre-tax money is basically like getting a free loan from the government. If you are in the 28% tax bracket for instance, a $100 contribution into your 401(k) would decrease your net pay (take home pay) by roughly $72. The other $28 that would have gone to the government is now working for you. The government knows they'll get their share eventually, but they're not going anywhere so they can be patient. You won't be forced to take anything out of that account until you turn 70 1/2, and when you do remove it, you will pay dollar-for-dollar taxes based on your current tax bracket. The government gets the majority of the taxes within 5 years after you die, unless your benefiaries elect a "Stretch" or generational IRA.

The earliest money you invest will have the most time to grow, thus is the most valuable. Unless the withdrawal is to put food on the table or a roof over your head, I highly suggest not drawing it out.

Answer 3

You can take out a loan against your 401k, but you will 1) pay a penalty, and 2) have to pay it back in *after* tax dollars. Since the money that went in was from pre-tax dollars, it's like getting hit with another 29% penalty (or whatever tax bracket you're in). The one exception is for first time buyers, who can pull money out of 401ks and IRAs without penalty. But it's still really not recommended.

Answer 4

Generally, yes. You have 2 options- a hardship withdrawal and a loan. A loan is a better option if you have the ability to pay it back. Simply withdrawing money will kill you come tax time and you will lose a significant percentage of money to the firm that manages your money in the 401k.

If you don't need to take money out, don't! Remember why you participate in your company's plan in the 1st place- to save for retirement. Taking money out prior to retirement erodes that purpose.

Answer 5

one million) you will probable walk away with approximately $10 - 11,000 assuming you haven't any longer lost any fairness because of the fact that final you regarded. there's a 10% early withdrawal penalty after which you pay taxes, because of the fact the money became contributed pre-tax. 2) together as a chit expenses account is secure, you pay for the lack of possibility by skill of having a drastically decrease pastime fee. you would be complicated pressed to get greater desirable than one million - one million.5% in pastime, which skill you will finally end up dropping cost besides, because of the fact that inflation will outpace income on the account and the money will purchase drastically much less once you do bypass to retire.in case you have 10 years or greater to retirement, you may properly be basically approximately assured that the industry will bounce returned quicker or later for the period of that factor and together as we will not see the bypass-bypass days of the ninety's, the industry ought to take exhilaration in closer to its historic norm of 8% return each year.

Answer 6

You can if you want to get a 40% penelity. You need an emergency fund of 3-6 months of expenses for the little oops in life. You need to be out of debt so your salary works for you instead of you working for the payments in your life.

I suggest you read:
The Total Money Makeover or Financial Peace Revisited by Ramsey (Explains, savings, debt, investing, giving, emergency funds, etc.)
Money Matters by Dayton
or
The 9 Steps to Financial Freedom or Suze Orman's Financial Guidebook by Orman

Answer 7

you can take money out, but you don't want to! if you take a withdrawal from your retirement account before you reach retirement age, not only will you have to pay income taxes on that money (your contributions to date have been pre-tax) there will also be penalties for early withdrawal. check with your HR department, or with your plan's administrator - they should be able to provide you with the specific terms of your account.

Answer 8

It depends on your plan's administrator, but you don't want to do it... there are too many tax penalties for pulling the money out.

Answer 9

yes you can. however in most cases there are tax penalities. plus you have to pay it back in with interest. so now you will be making larger contributions to catch up. what's worse is that the extra you are paying to catch up is made in after-tax dollars instead of before-tax dollars so you are losing money. don't do it if you really don't need it!!!

Answer 10

yes, you can take out money. there are penalty fees and you will have to pay taxes on it.