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A
401(k) is a long-term plan that helps you save money for your retirement.
Although it may be tempting or even unavoidable for
you to withdraw money from the plan before retirement, you should know the
consequences of doing so.
Aside
from the obvious consequence of reducing the amount available when you retire,
there are also tax consequences of an early distribution. Generally, you must
pay income tax on most distributions from a 401(k) plan. However, if you take an
early distribution, you may also have to pay an
additional 10 percent tax unless you:
·
are over 59½ years of age, or
·
qualify for another exception to the additional10 percent tax.
Many
401(k) plans do allow you to withdraw distributions early without a penalty for
certain events that cause you, your spouse or your dependents to suffer a
financial hardship. For example, some 401(k) plans may allow an early
distribution to pay for:
·
medical or
funeral expenses,
·
tuition and
educational expenses, or
·
the purchase
of a primary residence.
So,
consider the consequences before dipping into your retirement savings.
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