The 401(k) plan allows millions of Americans the opportunity to save for retirement with a little extra help from Uncle Sam.
It is not generally to your advantage to take money out of a 401(k) plan before reaching the age of 59 ½, when you will not face extra taxes. However, there may be certain circumstances in which withdrawing money from a 401(k) makes good sense.
Here are five times it may to your advantage to withdrawal money from your 401(k).
Free Retirement Calculator: When Can You Retire? — Click Here to Find Out
1. In True Hardships
Every plan lists hardships slightly differently. It is best to read the fine print. However, the IRS defines it as a withdrawal
that immediately meets the needs of the plan owner or their spouse. These include education, medical expenses, and certain expenses related to the primary residence of the 401(k) plan owner. A hardship deduction can be as much as the employee’s total contribution.
2. Borrow Money from Yourself
Some people could gain an advantage in taking money out of their 401(k) because they are not able to get credit at affordable rates, Bankrate said
. It is best to carefully weigh how much you will save in interest on any potential loan against the loss in interest gained in the 401(k) before making that choice. There is also usually a limit on the time period in which you have to pay yourself back.
3. Medical Bills
Some medical bills can be paid with funds from a 401(k) without penalty. The unemployed can also avoid penalties if the money is going to help pay for insurance, CNBC reported
First-time homebuyers can take up to $10,000 out of their 401(k) without penalty. This can make good financial sense, since a home is another type of investment, CNBC said.
An Extremely Simple Way to Determine If You're Ready to Retire — Find Out Now
5. Upon Retirement
When you reach 59 ½, you can begin to take the money out of your retirement account without the 10 percent penalty. If you have not started taking money in regular distributions by the time you are 70 ½, you will be required to start.
© 2021 Newsmax. All rights reserved.