One of the most common questions that people ask concerning their 401k is whether they can take out the money in it and use it. It’s something asked not just by those who are about to retire but even those who have a long way to go. It is not surprising that a lot of people would be wondering about it since the money in the plan is their own. Though it is earmarked for your retirement, no one can really blame you if you want to get hold of it or at least some part of it to buy something now.
Using Your 401k Before Retirement
Can I use my 401k to buy a new car? The answer to that question is yes, you can. No one or nothing can prevent you from taking the money in your 401k plan and using it for buying a car, paying for medication or buying new clothes. It is your money after all. You can learn more about planning for your retirement at the Suncorp superannuation portal.
On the average, a 401k plan is not to be used until a person reaches retirement age at 59 and 1/2 years old. Before that age is reached a person is just supposed to keep on adding to his/her plan. Some employers also match a certain percentage of their employee’s contribution and after some time it might become your biggest savings. The only downside is that unlike a savings account, your 401k is not as readily accessible. If you were to use your 401k before you retire there would be penalties and that is on top of the usual income tax which it would be charged with the moment that you take out your plan.
Using Your 401k Without Penalties
There are always some exceptions to any rule. In the case of using your 401k before reaching retirement age, there are several exceptions.
- You become disabled.
- When you die the account will be paid to your beneficiaries.
- You have some medical expense that exceeds a certain percentage of your income.
- You lose your job when you are 55 or older.
Under these circumstances you can take out your 401k plan and not have to worry about penalties.
Using Your 401k Plan
What would it cost to use your 402k plan before retirement? Typically you would have to pay 10% withdrawal penalty. That is on top of the usual taxes that any money that you take out is going to be charged with. Studies indicate that the total penalties that you would have to pay could reach 40% of the total amount. That would include the federal and the state taxes that you would have to pay.
This should serve as food for thought. If you are planning on using your 401k plan to buy a new car now, there’s nothing preventing you from doing that, but is it worth it? You would be throwing away your retirement money now just for some instant gratification. Just think about your retirement when you need all the money that you can get and you could no longer work.