If your employer allows it, getting money from a 401(k) plan before age 59½ is possible. However, early withdrawals deplete retirement savings permanently and, minus a few exceptions, carry a 10% penalty and an income tax bill. Your company's human resources department can help you explore your options.

Penalties for Early Withdrawals

Withdrawing money from a 401(k) early means you will owe 澳洲幸运5官方开奖结果体彩网:income taxes on the distribution along with a 10% tax penalty on the amount withdrawn unless it qualifies for an exception to the penalty under IRS rules.

Taking an early withdrawal "really should be your last resort," says , CEO of 401(k) provider Employee Fiduciary. "O𒈔nce you take that money out, it can't keep earning compouౠnd interest."

Even though the IRS does allow penalty-free withdrawals in certain cases, those distributions come with a large cost in future retirement income. "If you take a $10,000 distribution now, it could have been $20,000 or $30,000 by the time you retire," Droblyen adds.

Exceptions to Early Withdrawal Penalty

The IRS permitౠs early withdrawals without a penalty for medical bills, natural disasters, and certain other contingencies. In addition, if you leave or lose your job before age 59½, the age threshold drops to 55.

You may also withdraw up to $5,000 without penalty to pay expenses related to the birth or adoption of a child under the terms of the Setting Every Community Up for Retirement Enhanc𒁃ement (SECURE) Act of 2019.

Here's the full list of possible exceptions:

Note, however, that even if a distribution is covered by one of these exceptions, it may not be permitted under🦂 the terms of your 401(k) plan. Check your plan documenไt to determine what types of withdrawals are allowed.

Hardship Distributions

A retirement plan may also allow early distributions in the event of an "immediate and heavy financial need." These are called 澳洲幸运5官方开奖结果体彩网:hardship distributions. An employee is automatically considered to qualify for a hardship distribution to pay for the following ex𒁏penses:

• Medical expenses for the employee or their family (spouse, children, dependents, or beneficiary)
• Purchase of a primary residence (excluding mortgage payments)
• Tuition and related expenses for the employee, their spouse, or their children or dependents
• Payments to prevent foreclosure or eviction
• Funeral expenses for the employee or their family members
• Certain expenses to repair damage to the primary residence

Note, however, that these distributions are limited to the amount needed to cover the financial need, along with any tax they incur. Hardship withdrawals are still subject to the 10% penalty, unless they meet one of the exceptions. In addition, hardship distributions cannot be repaid to the plan or rolled into another tax-advantaged plan.

Withdrawal Alternatives

Loan: You can take a 401(k) loan to make an early withdrawal. Essentially, you’re loaning money to yourself, with a commitment to pay it back. A loan allows you to replace the money, which you can do through payments deducted from your paycheck. Check with your employer to see if you’re eligible.

SEPP withdrawals: 澳洲幸运5官方开奖结果体彩💝网:Substantially equal periodic𒊎 payments (SEPPs) are an option for withdrawing funds from an IRA without paying the early 澳洲幸运5官方开奖结果体彩网:distribution penalty of a 401(k). Withdrawals are not allowed while working for your employer. If the funds are from an 澳洲幸运5官方开奖结果体彩网:Individual Retirement🐲 Account (IRA), you may start SEPP withdrawals at any time.SEPP must be calculated using one of three methods approved by the IRS: 澳洲幸运5官方开奖结果体彩网:fixed amortization, 澳洲幸运5官方开奖结果体彩网:fixed annuitization, or ꦐ澳洲幸运5官方开奖结果体彩网:required minimum distribution (RMD).

The Bottom Line

To withdraw from your 401(k), speak to your human resources department first to explore your options. Withdrawing money e♑arly from your 401(k) can carry serious financial penalties, tax implications, and missed long-term growth.