Stock Investing Strategies

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Cashing out your 401k

If you want to get out a 401k distribution then you should consider all of the advantages and disadvantages, especially if you are withdrawing money early.

If you are over the age of 59 ½ all money that you take out is penalty fee, but you still need to pay taxes on it. It is important to note that you do not have to start manually taking money out from your account until you turn 70 ½.

If you are younger then 59 ½ then a 401k withdrawal option might not be in your best interest. Whatever money that you take out early will be hit with a 10% early withdrawal fee. This means if you take out $10,000 then you will have to pay $1,000 in penalties. On top of that you will of course have to pay taxes on it. All of these fees can add up pretty quicky meaning you will have to take out even more money to take care of your bills.

In addition to that this money could have had the potential to grow over the years. Basically if you do not need the money then it is probably better to just let it stay in there.

If you need to get some extra money now you can always borrow it from your account. The 401k loan laws allows you to borrow money at a low interest rate while not harming your account. All the money that you do borrow would eventually be put back into your account when you pay the loan back so it would have a very small affect on your account in general. That could be a much smarter way to get money out now, if you have some income coming in and just need some money now.

Whatever you decide to do just remember that any money you take out now will stop working for you. Consider all of the consequences and rewards before making your final decision.

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