401k withdrawal
Would like to withdraw money from a 401(k)
What taxes will be applied to the withdrawal ?
What is the limit on the withdrawal in order to make a deposit to purchase a house ?
Terry Says
You’ve always been able to withdraw up to $10,000 penalty-free from a 40l(k) plan for the purchase of a first home — although some plans limit that process and do not allow loans for any reason. You don’t pay a 10% penalty for early withdrawal, but you do pay ordinary income taxes. this type of distribution from a retirement plan requires the plan sponsor to withhold 20% for federal income taxes.
And if you hurry and do it in 2020, under the CARES ACT, if you are impacted by Covid, you can actually withdraw up to $100,000 from your 40l(k) plan or up to 100% of your vested balance — penalty free (assuming you’re under age 59-1/2 and would otherwise incur a 10% penalty). But you must pay ordinary income taxes on the withdrawal. As a part of this special deal, the taxes can be paid over a three-year period — spread evenly over tax years 2020, 2021, and 2022. However, if you can pay back the amount you took out within three years, you can claim a refund on those taxes.
Just remember that when you are removing this money it will have a big impact on the growth of your retirement funds. And make sure it is clearly structured as a “withdrawal” and not a loan that must be repaid when you leave the company.
