401k plans are one of the most common retirement plans among Americans.
While they’re great for those that want to supplement Social Security down the line, it’s good to know how to handle this plan before that point.
Many make the mistake of withdrawing the money early, facing large penalties.
The biggest benefit to many 401k plans is you don’t need to pay taxes on the funds until you retire and withdraw the money.
401k plans explained
A 401k is both a retirement and investment plan Americans can get through their employer.
Whatever the employee deposits into the account is taken directly from their check and invested.
The money is taken from the paycheck before it’s taxed.
With a Roth 401k, you’ll pay tax before that point so when you withdraw you aren’t slapped with a tax fee.
Normally employers will match whatever it is you put into your 401k account.
The limit you can contribute in 2022 is now $20,500.
The catch up deposit for anyone ages 50 and older is $6,500.
When can I start withdrawing from my 401k?
You can begin making qualified withdrawals depending on how old you are when you retire and your company’s rules.
The age you may may qualified withdrawals in 59.5.
Between ages 55 and 59.5 you can withdraw money if you wind up laid off, fired, or quit working.
You will not be penalized for this.
You may not deposit money into your 401k anymore once you retire.
After you turn 72 you’re required to start taking money out regularly.
The amount and frequency depends on how much you have as well as your life expectancy.
While you can’t take out less than the required amount, you may take out more.
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