900 North Kings Highway · Cherry Hill, New Jersey 08034 · 856.667.4100 · 215.563.0276 · Fax: 856.667.3652
165 North White Horse Pike · Hammonton, New Jersey 08037 · 609.561.1555 · Fax: 609.561.8596

Weekly Tax Tips

Tax Tip - November 3rd, 2008

Archives

View past Tax Tips:

View past Money Management articles:


2008 · 2007

2006 · 2005

2004 · 2003

2002 · 2001

2000 · 1999
 

Other Tips

Business Tips

Financial Planning Tips

Money Management

Online Advisor

Search

Looking for something specific? Enter one or more keywords and search our entire site.

Know the tax rules for retirement plan withdrawals

You already know the many sound financial reasons for not taking money out of retirement accounts early. Unfortunately, emergencies happen — so you may also want to know the tax consequences if you're forced to consider a withdrawal from your 401(k) account before age 59½.

Here's an overview of the rules for two types of distributions.

  • Hardship withdrawals. When you need funds to pay an immediate and heavy financial burden such as certain medical or tuition expenses, you might be able to withdraw the value of your pretax contributions from your 401(k).

    Under current law, "hardship" distributions are generally taxable to you as ordinary income. In addition, a 10% early withdrawal penalty typically applies.
  • Loans. Depending on plan provisions, you may be able to borrow part of your vested balance from your 401(k). Like loans obtained from other lenders, the proceeds are tax and penalty free — as long as you repay the money received according to the terms of your plan. Interest you pay on the loan is not tax deductible.

    If you default — for example, by leaving your employer without repaying the loan balance — the withdrawal is considered a taxable distribution. You may also owe the 10% early withdrawal penalty.

Please contact us if you're thinking of taking early withdrawals from your 401(k). We can help you assess the tax impact and explore other options.

[Business Information] [Home]

 
 

untitled

This site designed and maintained by the Information Technology experts at Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Co.

We appreciate comments concerning our website. Contact our webmaster .