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401 (k) withdrawals: Rules you should know before cashing out — and how to avoid penalties (Ariel Skelley via Getty Images)
Considering cashing out a 401(k)? You must consider the tax implications, penalties, and opportunity cost of distributing the entire account.
Cashing out your 401 (k) plan before age 59½ means the withdrawal will typically be subject to a 10 percent penalty, on top of the income tax owed on the distribution.
In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodic employee contributions come directly out of their paychecks, and may be matched by the employer .
People have many reasons for wanting to cash out their 401(k), such as sudden or unexpected financial hardships. While you may feel it's necessary to cash out your plan early, it could end up ...
Making an early withdrawal from your 401 (k) might sound like a tempting idea — after all, it is your money. But once you know the ramifications, you may feel differently.
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