Why 401K Withdrawal Penalty Occurs

It is very frightening when you hear penalties in legal aspects. Among such is the 401K withdrawal penalty that could affect your life. 401K account is the savings account options used by many people in US. This account is given by companies to their workers to keep their money aside for securing their funds after they have retired from the job. However, withdrawal of the 401K account is only allowed after the individual retires from his job.

Actually, the company and the internal revenue department of the government has rules and regulations regarding withdrawals of these accounts. The employer allow tax exempted amount to the contributed in the 401K account until the distribution of the amount from 401K account occurs. In fact, the matter about 401K withdrawal penalty is under the same condition. This usually occurs when the employee withdraws his finances at the time when his is either equal to or below fifty-nine and a half years old, he is liable to give 10 percent more as the tax goes back to the internal revenue department. The decimal amount of the 10 percent frequently depends on the amount of money that the individual withdraws from his 401K account.

However, there certain exemptions, which may change the penalties of the person involved.
The 401K withdrawal penalty can be changed if:

•The worker is 55 years and above and has taken the retirement.

•One acquired chronic physical and mental disabilities.

•The major intention of the account withdrawal is due to some related concern like divorce with a spouse.

•The employee dies and the funds will be provided to its beneficiaries.

•Medical expenses of the employee are over 7.5% of his gross income.

The other concern you must know about the 401K withdrawal penalty is how you have to pay them. The company would automatically hold 20% of what you compensate for the penalties, yet this would likely not cover all. You still have the obligation for other matters like filing your annual taxes. This is something that you have to be aware beforehand so you could put some cash aside to disburse for this when the taxes come to due. If you don’t study and search for the essential considerations in 410k withdrawal penalty, then you will be having a lot of problems regarding your funds in the upcoming.

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Article source: http://meretirementplanning.com/retirement-planning/401k-plan/why-401k-withdrawal-penalty-occurs/