401k Withdrawal Rules - Avoid Taxes Legally

401k withdrawal can really hurt you if you are not careful about the taxes that could be due. Job changes, hardship withdrawal, first time home buying, tuition are all viable means of 401k early withdrawal that you could do without having to pay a tax penalty. And the taxes for 401k early withdrawals are not pleasant if you do not have a valid reason for removing that money form your account.

The IRS and the Truth About Your 401k Concerns
By Richard Close

I recently changed jobs and rolled over my 401k to my new job. Since it was a roll over do I still have to pay taxes on it?

No you don't. You still take the 10% tax penalty for early withdrawal. You do have to complete the rollover within 60 days in order to not have to report it as income for the tax year.

I recently retired and cashed out my 401k. Are there any tax benefits available to me because I waited until retirement to take out the funds?

You still have to report the lump sum payment of the 401k as income for your tax year and it will be subject to the 20% tax the IRS takes out. However since you did wait until retirement you won't be subject to the 10% early withdrawal penalty.

Can I use the contributions I make to my 401k as a deduction on my taxes?

No you can't. The only kind of contributions you can claim deductions for is the charitable kind. And investing in your own retirement is hardly a charitable donation.

What is a hardship distribution?

Hardship distribution is a way to withdraw money early from a 401k without paying the usual 10% penalty. The situation for a hardship distribution must require an "immediate and heavy" need for financial assistance. Acceptable reasons for a hardship distribution include: medical bills; costs for the purchase of a home; tuition and education; payment to avoid foreclosure or eviction; funeral expenses.

The money from a hardship distribution does have to be reported on your tax return as income, but depending on what the money was for you may be able to claim part of it as a deduction.

Do I have to pay more taxes on my 401k withdrawal if I'm under 50?

No you still pay the early withdrawal fee and the 20% tax on a 401k withdrawal. The 10% early withdrawal fee is only waived upon cashing out the account at retirement.

Now you have the smoking gun...Use it!

Richard Close was an IRS-Hitman. He worked as a revenue officer for the IRS and his father was the head of the collections branch for 30 years; so it runs in the family. He left that behind and now he's partnered with Tax Defense Network to help thousands of Americans with their tax problems. He gives the tips and tricks for you to fight the IRS and win! Visit him at: http://irs-hitman.blogspot.com or http://www.taxdefensenetwork.com, or contact: email irs-hitman@taxdefensenetwork.com or 1-888-248-9058. Article Source: http://EzineArticles.com/?expert=Richard_Close
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401k Withdrawal Without IRS Penalties

401K Withdrawal - How To Avoid An IRS Tax Debt
By Richard Close

Slump City: So, you're in debt and you can't pay it off. If you've got some money stashed away in a 401k, here's a few things you should know about that money.

No Taxes! When you put money into your 401k plan, you don't have to pay taxes; sounds good right? That's because income taxes must be paid on all withdrawals. The only way to avoid those taxes is if you rollover the money to another employer-sponsored plan or to an IRA. At age 59.5 you may tap into your account without a 10% early withdrawal penalty. If you leave a company and you are 55 or older, or disabled, you don't have to pay the 10% penalty.

Your Boss holds the Key! Most 401k plans only allow early withdrawal if it's for "financial hardship" purposes. Your employer determines his/her own definition of "hardship," which can be a good or a bad thing for you. Your employer may also use "safe harbor rules" which allow withdrawals for the following reasons:

1) To pay medical expenses

2) To cover down payment or to avoid eviction or foreclosure on primary residence

3) To pay college tuition

4) To cover funeral expenses for a family member.

Don't Forget, not all plans will let you borrow from your 401k. Plus, if they do let you withdrawal, you can only take 50% or less. So make sure you know your companies' 401k policies. Here are some of the rules and regulations for loans with your 401k program.

1) You must repay your loan within 5 years, unless you took out the loan to purchase your current residence.

2) The interest that you pay on your loan is subject to double taxation. That means that you pay the interest with after-tax money and it is subjected to taxes when you eventually withdraw it.

3) If/when you leave your company, you may have to pay back the outstanding balance in full. Otherwise, the outstanding amount will be subject to a possible 10% early withdrawal penalty.

4) If you default on your loan, the outstanding balance is also subject to a 10% early withdrawal penalty.

Fine Print: The most important thing is understanding the rules and regulations. If you follow them, you will never be caught off guard. Knowing the consequences can help you decide whether or not an early withdrawal is right for you. Depending on your situation, taking money out of your 401K may sound like the right idea, but it may put you in a worse spot than you were before.

Now you have the smoking gun...Use it!

Richard Close was an IRS-Hitman. He worked as a revenue officer for the IRS and his father was the head of the collections branch for 30 years; so it runs in the family. He left that behind and now he's partnered with Tax Defense Network to help thousands of Americans with their tax problems. He gives the tips and tricks for you to fight the IRS and win! Visit him at: http://irs-hitman.blogspot.com or http://www.taxdefensenetwork.com, or contact: email irs-hitman@taxdefensenetwork.com or 1-888-248-9058. Article Source: http://EzineArticles.com/?expert=Richard_Close http://EzineArticles.com/?401K-Withdrawal---How-To-Avoid-An-IRS-Tax-Debt&id=1190032

4 Main 401k Withdrawal Rules Without Penalty

401K Withdrawal Rules
By Candis Reade

401K Retirement Plan was created in order for those working individuals to have a good substantial amount to have with when they retire. Yes, you have set aside a part of your income in order for you to live a life you want to live when you reach the age of retirement or when you want to retire from working. However, what if you are into a financial emergency, you need a substantial amount to pay for your medical bills and other expenses, what you should do? It is suggested that you should only withdraw money from your 401K only when you do not have any option left. Remember, you are slashing money out from your future, and if you will always do this withdraw and withdraw money from your retirement plan you will be shocked, there is no money left for you when you retire. Be sure you know the 401K withdrawal rules before withdrawing the money. It is not as simple as withdrawing money from the atm machine.

You should be familiar with 401K withdrawal rules before you decide on withdrawing money from your retirement plan. Most likely, the retirement plans of which working individuals have will only allow withdrawal only if it is under the so-called term financial hardships. What are these? Most of the reasons that are classified under such term are: death of the workers spouse or a big medical bill.

Most of the employers set up 401K withdrawal rules based on the guidelines that the Internal Revenue setup. This means that when you are in dire need of cash immediately, then supported with a reason under financial hardship, you are eligible for such withdrawal.

Here are four reasons that under 401K withdrawal rules that would allow you to make a withdrawal:

1. When you incur a surmountable amount for medical bills either for your spouse, family or even you.

2. Preventing the foreclosure of your home.

3. Purchasing a house which will become your primary residence, this excludes paying your mortgage.

4. Paying for school fees either for post-secondary or university for your dependents, spouse and children.

One of the 401K withdrawal rules that you should remember is that when you withdraw money based on the reasons mentioned above you will be suspended from making any annual contributions for the period of 6 months. Remember, when you need cash that getting money out from your 401K retirement plan will affect your future. It should be your last resort.

Candis Reade is an accomplished niche website developer and author.
To learn more about 401K withdrawl rules, please visit Early Retirement Plans Today for current articles and discussions. Article Source: http://EzineArticles.com/?expert=Candis_Reade http://EzineArticles.com/?401K-Withdrawal-Rules&id=1603964

401k Withdrawal to Ensure You Have Enough Retirement Money

401k Withdrawal - How To Ensure You Have More Than Enough Cash For Retirement
By Josh Neumann

A 401k withdrawal is obviously essential once you reach retirement. However, in order to live the retirement lifestyle of your dreams, you need to make sure you have enough money in your 401k in the first place, so when you go to withdraw the money, you have enough after tax dollars to support you.

The 401K plan is a way in which the worker puts a portion of their income into a retirement pan, and often times the employer will match that up to a certain point. This is often a very effective retirement planning mechanism, because it allows the employee’s funds to grow free of tax until they conduct a 401k withdrawal.

These 401K tax deductions may also be converted over to stocks, mutual funds, and bonds. Some firms will also allow the tax deduction to be used to purchase the firm’s shares that you work for. Believe it or not, you can also set up a 401k if you own your own business, although many aren’t aware of that. There are two varieties of a 401k plan-a trustee version and a participant plan.

With the trustee 401K plan, someone is appointed to look after where the 401k investment money is put into. With the participant plan, on the contrary, the employee themselves has the option to decide where they want their money to be placed.

Again, some companies will put their own money into your fund to encourage you to save more for retirement, although not every company will do this. Most 401ks will allow up to 15% of your income to be directed into your 401k.

Although it may be difficult, especially when you see the money growing and thinking of what you could purchase with it, don’t take the money out until you hit retirement. Not only will you incur an early withdrawal penalty (usually 10%), you will also be charged income tax on the funds you withdraw.

However, if you delay until you reach 59 ½, you incur no such penalties, so wait to take the money out! Hopefully, these 401 withdrawal tips have helped you with your 401k plan understand. Remember, most people never have enough money to live the retirement lifestyle they’ve always wanted because of a simple lack of planning. They are then forced to either not do the things they wanted during retirement, or worse yet, continue working well into retirement just to have enough money to survive on.

Don’t be one of them. Follow these 401k withdraw tips, and you will have more than enough to live the retirement lifestyle you’ve always wanted.

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