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401(k) Withdrawal Taxes and Early Distributions You might find yourself in a situation where you need the money in your 401(k) before you reach 59 1/2 years of age.
In your case, that would be your pension and 401(k) withdrawals. Since you have $800,000 in your 401(k) and plan to withdraw 4% in your first year, you’ll have $32,000 in income from your 401(k).
Based on 401(k) withdrawal rules, if you withdraw money from a traditional 401(k) before age 59½, you will face — in addition to the standard taxes — a 10% early withdrawal penalty. Why?
Withdrawals from pre-tax retirement plans, such as 401(k) and IRA accounts, are taxed as ordinary income. This rule applies even if you take withdrawals based on the sale of stocks or other assets ...
The 4% rule says to take out 4% of your tax-deferred accounts — like your 401(k) — in your first year of retirement. Then every year after that, you increase your retirement withdrawals by the ...
But you’ll owe ordinary income tax and a 10% penalty if you withdraw earnings (i.e. gains and dividends your investments made inside the account) from your Roth 401(k) prior to age 59 1/2.
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