The Truth About Withdrawing From Your 401(k)

 In Financial Planning, Ozarks Live, Productivity, Tips

The Truth About Withdrawing From Your 401(k)

The main focus of 401(k)’s are growth and accumulation. They also have tax favored contributions, when you make a contribution, it’s pre-tax from your paycheck.  This lowers your taxable income. When you enter retirement creating income from your growth and accumulation account becomes difficult.  401(k) accounts are not designed to create an income stream, they are mainly designed for accumulation and growth. When we think of 401(k) withdrawals we usually envision after retirement, but there are instances in which we take money out beforehand.  Please consult with a tax adviser before you make a withdrawal if you are under 59 1/2.

Here are some items that are considered by the IRS as acceptable reasons for a withdrawal from a 401(k):

  1. Unreimbursed medical expenses for you, your spouse, or dependents.
  2. Purchase of an employee’s principal residence.
  3. Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
  4. Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
  5. For funeral expenses.
  6. Certain expenses for the repair of damage to the employee’s principal residence.

Sometimes things come up forcing us to take money out and rearrange out finances. There are some people out there who think “you know what “I had planned very well actually, “I’m doing okay, I don’t need to take this money out right now”, but in cases like the ones mentioned above, it’s crucial to think ahead and ask if money is taken out, what are the potential consequences?

Keep in mind it’s tougher to make up losses in retirement, if you can avoid that by mitigating your losses and re-positioning your 401k money, you may be in a better long term position. Remember, in Retirement you are beyond the growth and accumulation phase,  in the distribution phase of life and when you’re there the main thing we want to focus on is safety of our balance and the creation of sustainable income. That becomes priority over growth and accumulation.

You are probably wondering, “What do I do with my money and does it make sense to roll it out?” Well there’s three things that really make sense. First, you get more investment options. Most people think there is around 30 or 40 different vehicles to pick from inside their 401k account, but if you analyze them it is similar to diversification.  You may have 50 different company options but if they’re all growth companies, you’re still in a growth model.

Next, is tax planning. When you are ready to start navigating retirement income taxes their are threshold amounts you should stay underneath so you are not double taxed.  Their are a few different tactics to avoid future taxation such as moving some or all of your 401k into a Roth IRA.

As always, if you have any financial questions, give our office a call anytime at 417-882-1800 and make sure to tune into Bruce’s show next week. 


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We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives.  This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice.  All investments are subject to risk including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values.  

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.  

We are not permitted to offer, and no statement contained herein shall constitute, tax or legal advice.  Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation.  Our firm is not affiliated with the U. S. government or any governmental agency.  Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM).  AEWM and The Resource Center are not affiliated companies.  AW03182102

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