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If you have a tax-deferred retirement account, sooner or later you will need to access it. Even if you are doing well financially you have to take out monthly minimum withdrawals from a 401(k) or IRA eventually, unless you are still working. You can keep those withdrawals to a minimum and should stick to the minimum required amounts if you are doing well or still working. The longer the money sits in the tax-deferred retirement account, the longer it has to accumulate with no taxes paid.
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You can withdraw money from a 401(k) after the account holder reaches 59 1/2 years of age. The mandatory age where you must take monthly minimum withdrawals is 70 1/2 unless you are still working. If you stop working after 70 1/2 then you must start taking withdrawals immediately the following month.
You may be allowed to access tax-deferred retirement accounts early if there is a case of "hardship". This includes situations such as medical expenses, college tuition, covering a mortgage payment to avoid foreclosure or recovering from a natural disaster. You will be paying taxes on the amount withdrawn plus ten percent for an extra tax early withdrawal fee (which means you take out money to cover the taxes). The year after you take out the money the contribution limit is reduced by the size of the withdrawal. An example of this would be that you are allowed a $9,000 limit for the year instead of a $15,000 limit.
You may also be able to take up to half of the account's value in the form of a loan with an interest rate of up to two percent over prime. You then repay the loan, usually within five years, but it comes out of post-tax dollars so the repayments do not get the same tax savings as the original contribution to the account would have received.
Limitations, Transfers and Taxes
You can transfer both SIMPLE IRA accounts and 401(k) accounts to another employer tax-free if you do it within two years of opening the account. You can also transfer an IRA to an Educational IRA to help a child's education. Neither transfers or rollovers are taxable. Educational IRA withdrawals are not taxable; but make sure it is going for an educational purpose or you risk getting huge penalties. If you inherit an IRA you are allowed a five year time frame to disperse the money. If you take funds out of the retirement account for hardship purposes as stated above, you must replace an equal amount of money before filing taxes for that year to avoid paying taxes and penalties.
Source: IRS Publication 509
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