A 401(k) isn’t just another savings account; it’s your ticket to a comfortable retirement. And the trick to maximizing its potential? Letting the benefits of tax-free compound growth do its job.
Yes, the IRS has some tight grips on early 401(k) withdrawals. And for good reason! Dive into your 401(k) too soon, and not only will you be hit with taxes and penalties, but you also risk diminishing the bright future of your retirement fund.
So, when does the IRS deem it “too soon”? If you’re younger than 59 ½, taking money out of your 401(k) will attract a 10% penalty.
And that’s not all! You’ll also owe regular income tax on the withdrawn amount. In some scenarios, this could mean forking over more than half of your withdrawal in taxes and fees alone.
There are, of course, certain emergencies (like urgent medical needs or avoiding foreclosure) where the IRS allows you to access your funds. But even in those situations, if you’re under 59 ½, the penalties still apply.
Want to dive deeper into the do’s and don’ts of 401(k) withdrawals?
