Many employers offer 401K plans to help employees plan for the future by making contributions with pre-tax dollars, thus enabling the money to grow tax free until distributions are made. There are several key ages involved when determining the best times for both contributing to and withdrawing from 401K plans.
What is the minimum age for contributing to 401K Plans?
Most companies require those who contribute to 401K plans to be at least 21 years of age and to have been with the company at least one year. Beginning to save for the future at such a young age can to lead to a very prosperous retirement.
What is the minimum age for taking distributions from 401K plans?
Because money is invested in 401K plans with pre-taxed dollars, the distributions will be taxed when they are withdrawn. The minimum age for 401K withdrawal without any penalty is 59 ½ and 55 if you leave your place of employment. When you begin taking distributions you will be taxed according to the tax rate of your combined taxable income from all sources. If you take distributions earlier than the minimum age for 401K distributions of 59 1/2, without any known exceptions, you will be subject to a 10% penalty in addition to income taxes.
What is the best age to withdraw money from 401K plans?
The age of collecting maximum social security benefits is rising. Currently, if you were born 1960 or later you will not receive your maximum benefits until you are 67, but you can maximize your benefits by waiting until you are 70. If your income is above a certain level, some to all your social security benefits may be taxable. If you start taking your 401K distributions before you collect social security, you can protect some of your social security. Keep in mind if you are still working while you take 401K distributions, you will be taxed on the entire amount of your earned income. Also keep in mind that you must start taking distributions from your 401K when you turn 70 ½.