Thank you for replying so fast. I'm new to this so don't kill me yet. Here's my situation: I will be leaving my job in 3 years. I will have a total of 75,000 in my 401(K)plan. I don't want to roll the 401(K) money over to my new employer. What I would like to do is set up a college fund for my daughter, buy a two family house (for investment purposes/I do have good credit) and spend the rest of the money so I can see some of the fruits of my labor. I am currently 28 years old, so I will have time to resave with my new employer.
Please help!!
Sorry I don't agree with that. You are already enjoying the fruits of your labor by preparing for your retirement. If your 401K is your only savings then you are not planning properly.
However, I believe that you can avoid the 10% penalty by using the money for a down payment on a first home. Double check with your plan admins on that to make sure. As for your daughter's school fund. That won't fly. If you need money you can take out a 401K loan. Remember that all the interest on the loan goes back into your account building up your retirement savings even more.
With a 401K a first time home purchase does not exempt you from the 10% penalty. (Unlike an IRA.) You may be able to borrow against it, depending on how the 401K plan was set up. Alternatively, when you leave your job you may be able to roll it over to an IRA, then make the withdrawal from the IRA. Your best course of action is to talk to the plan administrator. Explain what you want to do. And find out if the particulars of that plan will allow it.
That said, I agree with Scott that you should reconsider your plans. The key to saving for retirement is starting early.
Is there any way to get around paying and early withdrawl penalty for a 401(k) plan?
I belive that a 401(k) loan payment is post tax money and will be taxed again when you latter retire and withdraw money. My understanding of hardship is that unless there are extreme health problems that penalties apply. As for taxes you may want to check to see if additional taxes will be due over and above the 10% deducted from your . You didn't state your age. If you are "substantially retired and taking equal payments" or age 59 1/2 or older then the penalty goes away.
Is there any way to get around paying and early withdrawl penalty for a 401(k) plan?
Another problem I just remembered that if you have an outstanding loan from a 401(k) and you leave an employer you may be required to cough up taxes for the outstanding balance. I haven't researched the penalty on this, but I would guess that the penalty would apply. You might want to check this last thought.
. Here's my situation: I will be leaving my job in 3 years. I will have a total of 75,000 in my 401(K)plan. I don't want to roll the 401(K) money over to my new employer. What I would like to do is set up a college fund for my daughter, buy a two family house (for investment purposes/I do have good credit) and spend the rest of the money so I can see some of the fruits of my labor. I am currently 28 years old, so I will have time to resave with my new employer.
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