When you reach the age of 59-1/2, you can start withdrawing money from your 401k without penalty. However, there are a few things you should know before you make your first withdrawal.
We will also discuss the different scenarios in which you would be allowed to make a 401k withdrawal without penalty. Finally, we will provide a list of resources where you can find more information about 401k withdrawals.
How To Withdraw Money From Your 401k
Knowing how to withdraw money from your 401k is valuable information. One of the biggest mistakes people make when withdrawing money from their 401k is withdrawing too much at once because they are without other options. If you have an emergency, then you should always have a backup plan in place.
Your 401k is not an emergency fund. The purpose of the 401k withdrawal rules is to help you set aside money for your future while allowing you access to some of that money when you need it. If you want more information on how much money you can withdraw from your 401k, please refer back to our previous article on this topic.
Now that we have covered some background information, let’s look at how you can withdraw money from your 401k.
There are a few ways in which you can withdraw money from your 401k:
1) You can rollover your 401k to an IRA. If you don’t know what a rollover is, please visit our article on 401k rollovers.
2) You can take a loan. For more information on this option, please visit our article on 401k loans.
3) There are the usual exceptions that allow you to withdraw money without penalty (i.e., withdrawal of your contributions after you turn 59-1/2). We will discuss this option in the next section.
4) Finally, some plans allow you to withdraw money without penalty for hardship situations. For more information on that option, please visit our article on 401k hardship withdrawals.
Withdrawing Your Contributions After Age 59-1/2 Without Penalty
One of the main reasons why people want to know how to withdraw money from their 401k without penalty is because they want access to the money in their 401k before they have reached the age of 59-1/2.
To withdraw your contributions from your 401k account you should follow two simple steps:
You must be unemployed You must have received unemployment compensation paid under any federal or state law for 12 consecutive weeks due to losing your job.
If you are unemployed and meet the requirements, then you can withdraw your contributions after age 59-1/2 without penalty.
What is considered unemployment compensation?
The following types of income are typically accepted as unemployment compensation:
Regular payments received from a trade union
State unemployment insurance benefits
Federal unemployment compensation benefits
If you have taken a salary deferral from your 401k plan, then you will need to separate the portion of the salary deferral which was considered contributions from any pre-tax or Roth elective deferrals.