How to Make a 401(k) Withdrawal and Avoid Penalties in 2020
The purpose of saving money in a 401(k) plan is to accumulate enough cash to cover your living expenses in retirement. The benefit of 401(k)s is they allow you to save in a tax-advantaged fashion. As such, the IRS imposes some pretty strict rules on withdrawals -- namely, that you generally have to wait until you turn 59-1/2 to get at that money, or otherwise face a 10% penalty. Here, we'll show you how you can access your 401(k) funds without getting hit with a penalty in the process.
A 401(k) plan allows you to set aside funds for retirement in a tax-advantaged manner. There are two types to choose from: traditional and Roth, though the latter option may not be available in all plans.
With a traditional 401(k), your contributions are made with pre-tax dollars, so there's immediate savings involved -- if you put in $8,000 in a given year, that's $8,000 of income the IRS can't tax you on. The money you stash in your 401(k) can then be invested for tax-deferred growth -- meaning, you don't pay taxes on gains in your account year after year. Rather, you pay taxes upon taking withdrawals in retirement, which you can do penalty-free starting at 59-1/2.
Source Fool.com
