Connect with us

Hi, what are you looking for?

Investing

401(k) Early Withdrawal Calculator

In general, you can only withdraw money from your 401(k) once you have reached the age of 59½. If you withdraw money earlier, you’re likely to be subject to a 10% early withdrawal penalty.

Use this free calculator to determine the impact of a 401(k) early withdrawal.

Should You Withdraw Early From your 401(k)?

Wondering whether cashing out your 401(k) early is the right answer? Here are a few benefits and drawbacks to consider before making your decision:

Pros: 

No repayment required: A 401(k) early withdrawal can be an alternative to a 401(k) loan or another type of financing like a personal loan or home equity loan. The benefit of a 401(k) early withdrawal is that, unlike other types of financing, you won’t have to pay it back.
Helpful in financial emergencies: In a perfect world, no one would have to withdraw from their 401(k) early. But it can be a helpful last resort for those in a financial emergency with limited other options.

Cons: 

Income taxes: When you take money from a traditional 401(k), you have to pay income taxes on those withdrawals. These taxes apply whether you withdraw the money early or during retirement. But if you’re withdrawing money to cover a financial emergency, taxes will reduce the amount that’s actually available to you to spend.
Penalty: When you take an early withdrawal from your 401(k), you’ll be subject to a 10% early withdrawal tax penalty, except in select circumstances. We’ll cover this in more detail below.
Diminished future earnings: The income tax and penalty you’ll pay on your early withdrawal aren’t the only losses. By reducing your 401(k) balance, you’re also reducing your potential earnings and, as a result, will have less money available to you during retirement.

You can explore different retirement planning options with Personal Capital’s free online tools. The Retirement Planner allows you to run different scenarios and compare them side-by-side with your current plan. You can even turn a new scenario into your actual plan.

401(k) Early Withdrawal Alternatives

If you really need money and tapping your retirement savings is the only way to get it, there are a couple of alternatives to an early withdrawal from your 401(k) plan.

401(k) loan

The IRS allows individuals to withdraw up to $50,000 or 50% of their 401(k) balance, whichever is lower. 401(k) loans generally must be repaid within five years or as soon as the individual leaves the company that sponsors the plan. The benefit of using a loan instead of an early withdrawal is that as long as you repay it within the specified time, the amount isn’t subject to income taxes or the 10% early withdrawal penalty.

401(k) hardship withdrawal

Individuals facing financial hardship can take money from their 401(k) balance to cover it without paying the normal 10% penalty. To qualify for a hardship withdrawal, you must have an immediate and heavy financial need and may only withdraw as much money as is required to satisfy the financial need. While the money won’t be subject to the 10% penalty, you’ll still pay income taxes on it.

Roth IRA withdrawal

Because you’ve already paid taxes on your Roth IRA contributions, the IRS allows you to withdraw them without additional penalties. The catch is that the money must be in your IRA for at least five years before you can withdraw it. You can also only withdraw your original contributions, not the earnings.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

You May Also Like

Economy

While I uncompromisingly condemn thievery, I easily understand thieves. Thieves seek to acquire goods they desire at costs they believe are lower than they’d...

Investing

Every marriage requires a few adjustments. For some couples, it’s living together for the first time. For others, it’s blending two families. For me,...

Economy

Greetings from Sweden! We address a big issue—for us and others in countries where the native language is not English. The issue is not...

Investing

Better-than-feared earnings results fueled a rally in U.S. stocks in October. Of the 52% of S&P 500 companies reporting through October, 71% beat analyst...

Disclaimer: BeTrulySatisfied.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.


Copyright © 2022 BeTrulySatisfied.com