What is a 401(k) Withdrawal?
The 401(k) withdrawal is the process of removing funds from an existing 401k plan. While intended to function as a retirement plan, an early withdrawal from an existing plan may take place for several reasons, including changing employers or opting for an early retirement. Depending on the age of the recipient, there are various options associated with a 401(k) withdrawal. For people who opt for a 401(k) withdrawal prior to reaching the age of 59 ½, there is the option of withdrawing the entire balance of the fund in one lump sum. When this option is selected, the administrator of the fund will withhold a percentage of the balance in order to pay applicable taxes. There is normally an additional percentage withheld as a penalty for withdrawing the funds as a cash withdrawal before reaching retirement. While the percentage withheld for taxes will be counted against the income tax due for the period, the penalty is not counted toward any taxes due. People between the ages of 59 ½ and 70
