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Tips and warnings about getting money out of your 401K plan for people below the age of retirement.

In tough economic times, people are often tempted to turn to the money in their 401K account. This money has been taken out of their paycheck every pay period since they began working and therefore has not been taxed. 401K money is supposed to remain in the account until a person reaches 59 1/2 years of age. There are severe penalties for withdrawing this money ahead of time.


If you are struggling financially, you can often save money by lowering your contribution to your 401K plan. There are no tax penalties for doing this, and your paycheck will be slightly bigger. Simply call your plan provider and request that your contribution be lowered to a specific amount.


If you are working, you cannot withdraw money from your 401K. However, you may borrow money against the balance of the account. Repayments are spread out over several years and are usually taken from your paycheck before it is issued to you. This plan is risky because if you get laid off or are otherwise unable to continue repaying the loan, the government treats the loan as a withdrawal and subjects you to the 10% early withdrawal tax penalty, as well as charging taxes on the loan amount.


If you are laid off or change jobs, you are entitled to your 401K proceeds. However, if you are under the age of 59 1/2 there are severe tax penalties for withdrawal. The federal government takes 20% of the total withdrawal in taxes, in addition to charging you a 10% early withdrawal tax. Depending on where you live, you may be liable for state taxes as well. You should leave this money alone or roll it over to another tax-deferred account if at all possible.