Can you withdraw money from your 401(k) while you are still employed? Not everyone should; not everyone can. However, if you can, it may mean that you can effectively implement part of your retirement income plan before you retire.
If your 401(k) plan permits it, you can take an in-service withdrawal and redirect some of your 401(k) funds into another investment vehicle.
The reasons why. A non-hardship withdrawal can provide you with early access to a portion of your retirement assets, freeing you to manage them as you wish. If the mix of funds in your 401(k) have taken a big hit lately, you might be wondering how some of those assets would do in other kinds of investments, especially those with less risk exposure.
We have compiled a list of companies allowing In-service withdrawals. To see if you company is one of them send me an e-mail or call my office at 1-800-693-9351.
The 72(t) strategy to avoid the early withdrawal penalty. If you are still working and pull money out of your 401(k) before age 59½, you will pay a 10% early withdrawal penalty plus income taxes on the money you take out.1 But you might be able to make early withdrawals with the help of IRS Rule 72(t). This tax strategy is complex, so please be sure to consult a qualified tax advisor beforehand.
Rule 72(t), based on life expectancy, lets you schedule fixed income withdrawals for five years or until you reach 59-1/2, whichever is longer.1 It lets you receive fixed, equal payments according to IRS calculations.
First things first: make sure you can do this. Talk with your employee benefits officer at work, and see that the Summary Plan Description (SPD) permits non-hardship withdrawals. Talk with your financial or tax professional to make sure it is an appropriate move for you given your overall financial plan. If you know you’ll need more retirement income, there can be real merit to reinvesting early withdrawals from a 401(k) in vehicles that generate it.
If you or someone you know needs some help managing retirement assets, setting up a retirement savings plan, or have life insurance needs, just give us a call.
Citations.
1 money.cnn.com/magazines/moneymag/money101/lesson23/index.htm [11/10/08]
