If you're unemployed, you can make withdrawals from your 401(k) without facing penalties. One option is the substantially equal periodic payments (SEPP) program. These payments must be distributed over a minimum of five years or until you turn age 59½, whichever is greater. Another option is a 澳洲幸运5官方开奖结果体彩网:401(k) hardship withdrawal, which can be taken due to an "immediate and heavy financial need." Individuals taking a hardship distribution will subject to a 10% early withdrawal penalty, as well as income taxes. In addition, note that 401(k) withdrawals are a form of income and may reduce your unemployment benefits.

How 401(k) Plans Work

A traditional 澳洲幸运5官方开奖结果体彩网:401(k) plan allows employees to contribute 🙈a portion of their salary🥀 on a pre-tax basis in order to save for retirement. Contributions are often invested in 澳洲幸运5官方开奖结果体彩网:mutual funds and grow tax-free until withdrawn, when distributions are treated as taxable income. A Roth 401(k), on the other hand, allows employees to contribute a portion of their salary on a post-tax basis. Taxes are taken out upfront. As long as it's been five years since you first contributed ꦦto the Roth account, withdrawals are tax-free.

Normally, workers cannot access 401(k) funds until they are 59½. Early withdrawals are subject to a 10% penalty.

There are ways to access your funds before age🍬 59 ½, however.

How to Access Funds When You're Unemployed

If you part ways with your employer, you will have a series of choices about how to handle your 401(k). First, there's the question of whether to keep your account with your former employer or transfer the funds to a 澳洲幸运5官方开奖结果体彩网:rollover IRA. If handled correctly, this transfer is not considered a 澳洲幸运5官方开奖结果体彩网:taxable event.

Rolling over a 401(k) into an IRA might make it easier to access the funds. Under certain circumstances, IRAs are not subject to a 10% early withdrawal penalty, though you would need to pay taxes on the withdrawal. Some 澳洲幸运5官方开奖结果体彩网:penalty-free IRA withdrawals include paying for unreimbursed medical expenses, health insurance premiums while you're unemployed, higher education expenses, or becoming permanently disabled.

The Age 55 Rule

If joblessness lingers, you might face a second question: What happens if you haven't reached age 59½ and need to tap into your 401(k)? If you become unemployed in the calendar year when you turn 55 (or after that), you can access the funds without having to pay the 10% penalty. No need to wait until age 59½. In fact, if you have a 401(k) at another employer you left long ago, you can access those funds, as well.

This is not true if you rolled over that money into an IRA. By the way, unlike with unemployment benefits, it doesn't matter if you were 澳洲幸运5官方开奖结果体彩网:laid off, fired, or resigned.

Substantially Equal Periodic Payments

What if you're under 55? There's another option for taking distributions without paying the 10% penalty. Unemployed individuals can receive what is termed a substantially equal periodic payment (SEPP) from their 401(k).

Payments must be distributed over a minimum of five years or until the individual reaches age 59½, whichever is greater. There are three different (and compli🎃cated) methods for calcul꧟ating SEPP distributions:

• Required minimum distribution (RMD)
• Amortization
• Sanitization

Your choice can be modified once after an election if your income needs to change. And when you turn 59½, withdrawals may cease or ratchet up or down without penalty. There are no further rules until you reach age 73 for those born between 1951 and 1959 or age 75 for those born in 1960 or later, when 澳洲幸运5官方开奖结果体彩网:re♋quired minimum distributions (RMDs) take effect.

Payments are typically calculated based on your 澳洲幸运5官方开奖结果体彩网:life expectancy or the combined life expectancy of you and your beneficiaries. Distributions can be taken with any fre♔quency during the year as long as withdrawals do not exceed the pre-calculated annual value. If the amount is arbitrarily modified, the 10% penalty exception is negated and you have to pay the penalties.

You can also withdraw money from an IRA using the SEPP method. An online calculator can help yo⛄u estimate what to withdraw, but this is🏅 one task that requires the help of a financial advisor to make sure you do it correctly.

Note that many states require individuals getting unemployment benefits to report 401(k) withdrawals as income. Thus, these withdrawals may lower your benefits.

401(k) Hardship Withdrawals

Under IRS guidelines, 401(k) plans may allow for hardship withdrawals (if your employer permits it). They are allowed only after other financial resources have been exhausted. Circumstances that qualify include:

• 澳洲幸运5官方开奖结果体彩网:Medical expenses incurred by the employee, their spouse, or dependents
• The cost to purchase a 澳洲幸运5官方开奖结果体彩网:principal residence
• Tuition or educational expenses
• Payments necessary to avoid eviction from a principal residence

Furthermore, the hardship distribution cannot exceed the amount of need, and the need should be documented. For example, if a worker is billed $5,000 for an inpatient hospital stay, the withdrawal cannot exceed that amount. However, the withdrawal may be increased to cover taxes and penalties.

The Bottom Line

Tapping into retirement funds before you are retired isn't ideal, though sometimes it is unavoidable. Keep track of what you've spent. If you do find new work, try to repay what you withdrew into your new employer's 401(k).

Also, consider making 澳洲幸运5官方开奖结果体彩网:catch-up contributions. For 2024 and 2023, those 50 or older can contribute an additional $7,500 to a 401(k). For IRA accounts, the catch-up contribution is $1,000 in 2024 and 2023, for a total contribution of $8,000 in 2024 and $7,500 in 2023.

For help during this difficult time, 澳洲幸运5官方开奖结果体彩网:unemployment insurance can be a stop-gap. Know what your options are when 澳洲幸运5官方开奖结果体彩网:unemployment benefits run out.