A 401k Withdrawal Could Hurt You

Although many people think that Simple IRA's and 401k programs are the same, there are various differences between the two. One of the key differences is in the withdrawals. The requirements and penalties are different for a Simple IRA withdrawal than they are for a 401k withdrawal. It is important that you understand these differences and how withdrawals work for both types of retirement accounts.

One thing that is the same about both a Simple IRA withdrawal and a 401k withdrawal is that you can access this money at any time. This is your money, and you can get it, but 401k rules, as well as Simple IRA rules mean cash penalties. On the other hand, the one thing that is different is there is a higher penalty within the first two years if you withdraw money from your Simple IRA. Within the first two years, the penalty is 25%; however, after the two years the penalty is only 10%. A 401k withdrawal does not have the two year rule, and it will cost you the same amount in penalties if you withdraw it before the intended time. There are some exceptions, such as financial hardship that will allow you to withdraw your money without the penalty, but usually there is one specific penalty charged, no matter how long you have had the 401k plan. You can also take out a 401k loan as well, which is an option that is rarely associated with a Simple IRA. The penalty that is associated with withdrawing early from your 401k account is 10% of the amount that you withdraw.

It is important to remember, that whether you are doing an early Simple IRA withdrawal or a 401k withdrawal, you will have to pay the taxes on the money that you withdraw, as well as the penalty amount. Remember, you pay no taxes on the money when it is initially put into the account, so taxes have to be taken out when you withdraw from these types of accounts. Usually, the taxes will be taken out automatically when you withdraw from these accounts, but it is important that you take the penalties and taxes into consideration if there is some money that you need. If you withdraw $5,000, remember that you will not receive that entire amount, so if you need $5,000 you will need to withdraw more than that amount.

Making a Simple IRA or 401k withdrawal may not be the best idea. There are times when you may have no other options, but if possible it is best to leave that money alone until you retire. When you withdraw money from these accounts, you put your retirement at risk. It is better to find the money you need somewhere else so you can keep the money that you need for your retirement. If you are considering making a withdraw from your retirement accounts, be sure that you discuss it with a professional before making your final decision.

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