While there are 72(t) calculators available online to help you determine your payment schedule, you should work with a professional before you proceed.
“The rules are very specific and detailed,” Featherngill said. “Work with a CPA before you do it.”
There might be other ways to use your retirement savings — if you absolutely have to — that might not be so rigid and punitive.
For instance, depending on whether your 401(k) allows it, generally you may borrow up to 50 percent of your vested account balance or $50,000, whichever is the lesser. You have five years to repay the loan.
In comparison, simply withdrawing the money from your 401(k) will result in a 20 percent withholding to cover your income taxes, plus a 10 percent penalty if you’re under 59½.
Meanwhile, a “hardship withdrawal” from your account will be included in your gross income and may be subject to more taxes, but it won’t be repaid to your plan. That means you’ve lowered your account balance permanently.
Finally, depending the circumstances of your emergency, the IRS may waive the 10 percent penalty for an early withdrawal from your IRA or 401(k) – and you won’t have to take a set schedule of payments.
Unreimbursed medical expenses that exceed 7.5 percent of adjusted gross income (10 percent if you’re under 65), total and permanent disability are among the situations that qualify.
“There may be options that you aren’t considering,” said Featherngill. “Just remember that the money coming out of the plan, unless it’s a loan, is subject to income tax.”
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