401K Withdrawal: How to Cash Out Retirement Money Without Penalties

The Internal Revenue Service (IRS) allows a 401k withdrawal without any penalty. However, there is a number of rules an individual needs to adhere to cash out the retirement money.

The Internal Revenue Service (IRS) has set a number of rules for 401k withdrawal that an individual has to follow. However, it is generally not easy to cash out retirement money from this program unless a certain guide is followed. Nonetheless, the IRS allows a 401k withdrawal without any penalties when an individual turns 59 years and 6 months old.

An article on MARCA states that after an individual turns 72, a 401k withdrawal is also required. These are known as RMDs or required minimum distributions. However, there are a few exceptions to the rules of the 401k withdrawal and a few other plans.

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401K Withdrawal Before 60 Not Advisable

According to Orem, a 401k withdrawal before an individual turns 59 years and 6 months old will result in some debt. The individual will most likely owe a federal income tax based on their marginal tax rate. In addition, a 10% penalty could be incurred on the amount withdrawn. Lastly, an individual may also owe a relevant state income tax.

Nonetheless, a 401k withdrawal can be a big help in retirement plans because it gives an individual the flexibility to change jobs without losing their savings. However, retirement plans may still fall apart if retirees will use them like a bank account during the period after retirement.

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