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When can you withdraw from your 401(k)?

Written by V. Raymond Ferrara, CFP®

On January 3, 2021

With your 401(k), you can save thousands of dollars to reach your retirement goals. These funds are allowed to grow tax-free until you are ready to make your withdrawals during your retirement. However, there are strict regulations on when you can withdraw from your 401(k) savings. Withdraw your funds too early, and you will have to pay a 10% penalty as well as be responsible for the income taxes they will incur.

Most people are eligible to withdraw from their 401(k) accounts at age 59 ½ without a penalty. However, there are some exceptions that make someone eligible for an early withdrawal.

Early withdrawal options

Below are some of the early withdrawal options for which you might be eligible. However, making an early withdrawal, even if eligible, might not be the best decision. Talk to a financial professional for advice before making a decision.

  • CARES Act — The CARES Act was created to help people through the economic hardship created by the COVID-19 pandemic. It allowed investors under the age of 59 1/2 to withdraw up to $100,000 without penalty. If you exercised this option, you will be responsible for paying the tax owed on the withdrawals within three years, or you can repay the withdrawal back to your 401(k) account without owing tax.
  • Rule of 55 — If you retire from your job at the age of 55 or older, you may be eligible to access your 401(k) funds without an early withdrawal penalty. Public servant positions, such as firefighters or police officers, are eligible for early withdrawal if they retire at the age of 50 or older.
  • Hardship withdrawal — If you have an immediate, heavy financial need, you may be eligible to make a hardship withdrawal without penalty. The amount you withdraw must not exceed the amount needed to satisfy the heavy, immediate need.
  • Loan option — Instead of making an early withdrawal, you can apply for a 401(k) loan. This allows you to replace your funds withdrawn with payments deducted from your paycheck. This option is not available with all 401(k) plans.

Talk to a ProVise CFP® professional about your retirement strategy

Having a hard time figuring out when to start making your 401(k) withdrawals? Even if you are eligible for an early withdrawal, it may still be in your best interest to wait a few years and save more. Your financial advisor can work closely with you to develop a strategy that helps you get the most out of your savings. 

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about planning for your retirement? Contact ProVise today to schedule a complimentary consultation.

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