One of the most popular retirement vehicles is a 401k, which is a tax deferred investment account that allows the user to save for retirement on a pre-tax basis. While a user can withdraw from this account penalty free after turning 59 and 1/2 years old, the process of how to do so can be confusing.
How To Withdraw
When you turn 59 1/2 years old, withdrawing from your 401k can be done penalty free. Actually withdrawing funds from your 401k account is quite easy. Most 401k accounts would allow you to withdraw funds through their online system. Withdrawals can be made electronically so the proceeds are sent directly into your account. You can also set up a convenient automatic withdrawal that will send you money automatically and as frequently as you want.
Prepare for Taxes
When you finally do begin to withdraw from you 401k, you need to be prepared to pay taxes on the withdrawal. Since the accounted is funded on a pre-tax basis, you need to pay taxes when funds are withdrawn. When you withdraw funds, the withdrawn amount will be treated as income. Because of this, it is always wise to wait until you are done working and earning money before making a withdrawal.
While withdrawals from your 401k are completely voluntarily, you eventually will be forced to make withdrawals. If you are 70 and a half years old and have not begun withdrawing funds from your account on a regular basis, the IRS will begin requiring withdrawal and taxing the funds in you account. The tax rate on these required withdrawals will be taxed the same way as normal withdrawals.