A:

Your options depend on the type of penalty that would apply.

If the penalty is a surrender charge or another penalty that would apply to an annuity or insurance product, you may want to consider leaving the assets in the plan until the time when the penalty will no longer apply. These penalties are not usually IRS-assessed penalties; rather, they are assessed by the company offering the product.

If the penalty is the 10% early-distribution penalty assessed by the IRS when an individual makes withdrawals before reaching age 59.5, then you may avoid that penalty by keeping the assets in the plan. If your plan is a 403(b) account, you may transfer the balance to a 403(b) account at another financial institution or roll over the amount to a Traditional IRA. These options are not taxable, and you will not be subject to the 10% penalty.

To learn more about this topic, read Taking Penalty-Free Withdrawals From Your IRA.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Are there penalties for withdrawing monies invested in annuities?

    Learn about the penalties associated with taking early withdrawals from an annuity. Steep penalties are assessed by the insurer ... Read Answer >>
Related Articles
  1. Retirement

    Your 401(k): Not the Best Emergency Fund

    If you have an emergency and need to access your retirement funds, you may have to pay a penalty if you dip into your 401(k). But there is a better option.
  2. Taxes

    How 401(k) Withdrawals Work When You're Unemployed

    Unemployed individuals can pursue several options when taking money out of their 401(k), but they should carefully weigh taxes and possible penalties
  3. Managing Wealth

    How to Avoid Penalties When Postponing Medicare

    The rules and timing can be tricky; here's how to navigate them, without getting dinged by penalties.
  4. Retirement

    Tapping Retirement Funds Early – Without a Penalty

    The IRS offers several ways to skirt the 10% penalty on early retirement distributions.
  5. Retirement

    Can You Afford To Retire Early?

    Early retirement is the hope of many people currently in the workplace. So, how do we get there - and what are the downsides?
  6. Retirement

    Don't Spend Your Retirement-Fund Cash This Way

    Before you cash out or raid one of your retirement funds, consider the following things you should not do with that money.
  7. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  8. Retirement

    When a 401(k) Hardship Withdrawal Makes Sense

    If you've exhausted all other avenues, there are ways to withdraw funds before age 59½ – sometimes without the 10% penalty that's usually due.
  9. Retirement

    Should I Use My IRA to Pay Off My Credit Cards?

    Cashing in an IRA to deal with outstanding credit card balances may not be the best way, but sometimes it's the best available way. Here's how.
  10. Retirement

    How a 403(b) Works After Retirement

    Everything you need to know (don't be afraid to ask) about handling your 403(b) plan when you retire.
RELATED TERMS
  1. Withdrawal Penalty

    Refers to any penalty incurred by an individual for early withdrawal ...
  2. Prepayment Penalty

    A clause in a mortgage contract that says if the mortgage is ...
  3. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  4. Penalty Repricing

    An increase in a credit card’s interest rate that occurs when ...
  5. Hardship Withdrawal

    An emergency withdrawal from a retirement plan that may be subject ...
  6. Excess Accumulation Penalty

    The penalty a retirement account owner or the beneficiary of ...
Hot Definitions
  1. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  2. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  3. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  5. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center