When Can I Take Money Out of My 401k

A 401k retirement plan is a program designed to promote post-retirement contributions or savings by the employees of various corporations. There is tax law in place that gives tax exemptions on the money invested in 401k plan, which allows the money to grow on a tax-deferred basis pending withdrawal. While on the other hand, tax law also prevents people from withdrawing of money until the age of 59.5.

If you choose to cash out a 401k before reaching the age of 59.5, you will be subjected to an additional tax of 10 percent. This will be in addition to the normal income tax. Because by law the money you invested in 401k plan is tax exempted, hence you will be taxed when you withdraw the money.

The 401k requirement permits you to withdraw the money early without penalty based on the following reasons; if you have an accident and become disabled permanently due to the accident, if you lost your job, get sacked or have early retirement, or you leave your present occupation, in order to roll your retirement savings into a new 401K account, and you are over 55 years of age, or your medical expenses surpass 7.5 percent of your gross income.

Moreover the 401K plan permits you to withdraw money from your plan prior to attainment of 59.5 years of age under hardship withdrawal clause. However, you will still be subjected to 10 percent early withdrawal tax penalty regardless. Hardship withdrawal could use for emergency situation like, for paying health insurance premium, prevention of home foreclosure, pay for funeral costs, pay un-reimbursed medical expenses or even college expenses of the children.

Finally, before you will allowed to withdraw money from your 401k plan under hardship clause, you will be require to provide some proof of what the money is meant for. For instance foreclosure documents or medical bills.