Retirement Withdrawal Penalties
You may have retirement withdrawal penalties if you take the money out of your retirement account before the age of 59 ½. This penalty is 10 percent of the amount you take out of your account, however there are some exceptions where withdrawal penalties do not apply. It is advisable to not withdraw from your account until you reach retirement age, unless you absolutely need the money.
- The 10 percent penalty can be avoided if you qualify for an exception. For example, one of the exceptions is for college expenses. There are no withdrawal penalties if the money is used to pay tuition and other qualified college expenses for you, your spouse, or your children.
- There are also no penalties if you withdraw the money and move it into another retirement account. For example, if you take the money from a 401k and then move it into an IRA, no penalty will be levied on your withdrawal amount.
- Ask yourself if the penalties are worth paying before you make your final decision to withdraw the money. If you are going to use the money to make an investment that will generate immediate cash flow on a monthly basis, the penalties may be worth paying. If you just want to payoff some debts because you are tired of the payments, you may want to reconsider your decision if the penalty is too intrusive.
- Do some research online or contact your accountant if you are having trouble deciding whether to withdraw or not. The extra time you spend or expense will be justified if you are able to arrive at a decision that is best for your current financial situation.