Deciphering 401(k) Rules When You Retire
<p>Most people are familiar with the basic premise that when you’re 59 ½ or older, you are able to take withdrawals from your 401(k) penalty free.</p>
<p>If you take a distribution from a <strong>traditional</strong> 401(k), you will owe federal income tax. The institute is required to withhold 20%. Even if you are in a lower tax bracket. It would be prudent to have state tax withheld as well (if applicable) so you do not have to pay a penalty to your state.</p>
<p>Barring any exception, at 59 ½ there is an additional rule for <strong>Roth</strong> accounts. In order to pay no taxes or penalty, the account has to have been established for five years. Pulling money out before the five years pass is considered an unqualified withdrawal and will result in taxation on investment earnings and you will be assessed a 10% penalty.</p>
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