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What kind of penalties and fees can I expect to pay when rolling a 401(k) over into a new retirement account and withdrawing $4,000 in the process?

I have a 401(k) with a previous employer that I plan on transferring to a financial institution closer to me. Is it possible to withdraw about $4,000 and deposit the rest into a retirement account, and if so, what kind of penalties and fees can I expect to pay?

Financial Planning, Retirement, 401(k)
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May 2018

Generally speaking, you will owe a 10% penalty on the withdrawal plus Federal income taxes (at your marginal tax rate) and perhaps state income taxes (it depends on your state of residence).  You can avoid the 10% penalty if you are over 59.5 years old (or, for some plans, 55 or older when you separated from employment with the previous employer).

There are a few IRS-approved withdrawal reasons that avoid the penalty (but not the tax!):  1. Paying unpaid medical bills; 2. Disability; 3. Health insurance premiums if you're unemployed; 4. Death (probably doesn't apply to you!); 5. IRS collections; 6. First-time homebuyer (if the withdrawal is after the funds are in an IRA instead of the 401k); 7. Higher education expenses (if the withdrawal is after the funds are in an IRA instead of the 401k; and 8. "72t payments" every year (not just the one-time $4,000 withdrawal you mentioned).  Here is some more info you may find helpful.

Some plans do assess a small fee for processing the distribution.  Please check with your plan administrator to verify the amount, if any apply.

I hope this helps!  Please follow up with me if you have any other questions.

 

 

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