Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

11/12/2007
When is it okay to withdraw funds from my retirement plan?
What if I have a major emergency? Can I withdraw funds from my retirement plan?
Rosemary Ervin, CPA:
expert info »
That depends!! Each retirement plan has a plan document defining provisions of the plan. Most allow early distributions (you still pay tax, just no 10% penalty on top of the tax) for certain major emergencies — medical expenses not covered by insurance, disability, etc. You may be able to take a loan to avoid immediate taxes on the distribution. But you have to pay the loan back on schedule with interest.
Bettye J. Banks:
expert info »
If you are over 59 1/2 you should be able to draw funds from a 401K or 403B without penalty. (You still have to pay the taxes so ask for a net amount when you request a draw. If you withdraw funds and are younger than 59 1/2, you could absorb a substantial penalty. For more information, contact your Human Resources department for specifics about your plan.
Michael A. Masiello:
expert info »
In general it is not recommended. Emergencies vary from person to person.
The ideal scenario is that an emergency fund is established with 3-6 mo's of
bills specifically for emergencies. Most early withdrawals from Retirement
accounts have a 10 % penalty plus ordinary income tax, could total more
than 40% in penalty and tax. Absolute last place to touch. Also, perhaps
more importantly this money won't be invested and earning a tax deferred
rate for your future. Despite all of the best intensions, somehow it is
never made up.
In general it is not recommended. Emergencies vary from person to person.
The ideal scenario is that an emergency fund is established with 3-6 mo's of
bills specifically for emergencies. Most early withdrawals from Retirement
accounts have a 10 % penalty plus ordinary income tax, could total more
than 40% in penalty and tax. Absolute last place to touch. Also, perhaps
more importantly this money won't be invested and earning a tax deferred
rate for your future. Despite all of the best intensions, somehow it is
never made up.
 

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