Early Withdrawal

Posts Tagged ‘401k’

Question: Roth IRA Question regarding Early Withdrawal Penalty.?

I had a retirement account through an employer that I converted to a Roth IRA when I left the company years ago. I now need to make an Early Withdrawal. I know my contributions can be withdrawn without penalty, but how about the employer contributions make when I still worked there? Can they be withdrawn without penalty as well? Any help would be greatly appreciated…

Answer: Your employer retirement account included contributions (yours and your employer match) plus earnings. When you converted that into a Roth IRA, on the date of conversion that account had the same amount of contributions and earnings. You paid income taxes on the entire amount converted at the time of the conversion.

Hopefully the Roth IRA that received the conversion does not contain other assets. I assume this is the case. Then you must keep that Roth IRA open for five years starting January 1 of the year you created the account. After that point, you can withdraw your original contributions (that came from your own contributions to the employer plan, and the employer contributions) without tax or penalty.

For converted Roth IRAs, all converted money must be in the account for five years before you can take anything out without penalty. This is quite different from Roth IRAs that were not created from a conversion.

If you have not kept the converted money in the Roth IRA for five years as defined above, then even if that Roth IRA has been open for five years (because it had older contributions in it before the conversion), you are going to pay a 10% penalty on any distributions of the converted contributions.

Retirement Savings – What is a Roth IRA?

Question: Better to withdraw funds from a 401K or IRA?

Assuming you can withdraw early from an IRA account.

Answer: Neither is good to withdraw from. You are looking at about 40% in fees and penalties. And if you loose your job (where the 401k) is at and you haven’t paid back the loan, the government will assume you did an emergency withdraw.

I urge you to try and scrimp and save for what ever your emergency is (or ask for a payment plan with what you need to do).

Will Your 401k Be The Next Victim of Failed Government?

Question: Is there a penalty for withdrawing from a Roth IRA to pay a student loan?

I know there is usually a penalty for Early Withdrawal but isn’t that waived for education expenses?

Answer: There is no penalty exception for withdrawing funds to pay for a student loan.

That being said, you would be able to withdraw a portion of your Roth IRA savings without paying taxes or penalties. With a ROTH, you can withdraw, without penalty, up to the dollar amount that you have contributed to the plan. Any earnings would be subject to taxes and penalties if withdrawn.

Example:
Let’s say you contributed $20,000 over the years to a ROTH. That $20,000 has grown to $25,000. You would be able to withdraw up to $20,000 penalty free… but if you were to withdraw more than the $20,000, taxes + penalties would apply.

Hope this helps!

Self Directed IRA Part 6 Private Lending