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Withdrawing From Retirement Accounts Early | Layton & Stacey Smith
We get it! In today’s economy, you may have no choice but to withdraw from your retirement accounts. But is it a good idea to do this?
In this episode, we provide the details you need to know about withdrawing from your retirement accounts early. So, grab your favorite drink and cigar and tune in to hear our insights on this topic.
Going Through Hardship: Should You Touch Your 401K?
Many people tap into their retirement savings when facing financial difficulties or needing to make a significant purchase.
Contributions to your 401(k) are deducted from your paycheck before taxes, with the intention that you wait until age 59 ½ to withdraw them.
However, if you withdraw funds early, you'll incur a 10% penalty.
We provide examples of why this is often a poor financial decision and how the penalty can impact you.
Tax Planning and Tax Legislation
Stacey explores how to plan effectively if you decide to withdraw funds from your 401(k).
She provides examples of steps to take both before and after the withdrawal.
One of her suggestions is to withdraw an additional 20-30% to cover the penalty, though this advice varies based on your income level and financial resilience.
Remember: Before withdrawing money from your retirement accounts, it's wise to consult with your tax advisor. They can offer guidance on whether it's the right move for you.
Exceptions on the 10% Penalty
We provide several different examples of when there’s an exception on the 10% withdrawal penalty:
Educational expense
Qualify medical expense
First-time home buyer
Hardship: foreclosure, eviction
Disability
However, remember it doesn’t get rid of ordinary taxes and only eliminates the 10% penalty.
Roth IRAs Withdrawals
Roth IRA withdrawals are unique compared to other retirement accounts due to the nature of the contributions.
Since Roth IRAs are funded with after-tax dollars, the money you contribute has already been taxed.
Therefore, when you withdraw funds, you only owe taxes on the earnings, not the contributions.
Stacey provides examples that illustrate why Roth IRA withdrawals are different from those of other retirement accounts. She explains the tax advantages and potential implications of withdrawing from a Roth IRA.
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By Layton Smith and Stacey Hoffler SmithWe get it! In today’s economy, you may have no choice but to withdraw from your retirement accounts. But is it a good idea to do this?
In this episode, we provide the details you need to know about withdrawing from your retirement accounts early. So, grab your favorite drink and cigar and tune in to hear our insights on this topic.
Going Through Hardship: Should You Touch Your 401K?
Many people tap into their retirement savings when facing financial difficulties or needing to make a significant purchase.
Contributions to your 401(k) are deducted from your paycheck before taxes, with the intention that you wait until age 59 ½ to withdraw them.
However, if you withdraw funds early, you'll incur a 10% penalty.
We provide examples of why this is often a poor financial decision and how the penalty can impact you.
Tax Planning and Tax Legislation
Stacey explores how to plan effectively if you decide to withdraw funds from your 401(k).
She provides examples of steps to take both before and after the withdrawal.
One of her suggestions is to withdraw an additional 20-30% to cover the penalty, though this advice varies based on your income level and financial resilience.
Remember: Before withdrawing money from your retirement accounts, it's wise to consult with your tax advisor. They can offer guidance on whether it's the right move for you.
Exceptions on the 10% Penalty
We provide several different examples of when there’s an exception on the 10% withdrawal penalty:
Educational expense
Qualify medical expense
First-time home buyer
Hardship: foreclosure, eviction
Disability
However, remember it doesn’t get rid of ordinary taxes and only eliminates the 10% penalty.
Roth IRAs Withdrawals
Roth IRA withdrawals are unique compared to other retirement accounts due to the nature of the contributions.
Since Roth IRAs are funded with after-tax dollars, the money you contribute has already been taxed.
Therefore, when you withdraw funds, you only owe taxes on the earnings, not the contributions.
Stacey provides examples that illustrate why Roth IRA withdrawals are different from those of other retirement accounts. She explains the tax advantages and potential implications of withdrawing from a Roth IRA.