While each retirement plan has similar early withdrawal penalty exemptions, they are not all alike. Knowing these subtle differences within 401(k) plans can help you avoid a 10 percent tax penalty if you take money out of the plan prior to reaching age 59 1/2. This is true because a basic rollover of funds into a Traditional IRA is a readily available option to avoid the penalty. You should consider rolling over your 401(k) into an IRA prior to early distribution when:
Remember, by rolling the funds prior to pulling the funds for pre-retirement distribution you are avoiding the early withdrawal penalties, but you must still pay the applicable income tax.
Bonus Retirement Plan Tips
Two other quirks in the retirement tax code to be aware of:
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The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
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