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401(k) Distribution to Repay Student Loans - The Bills.com Blog
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401(k) Distribution to Repay Student Loans
Tuesday, Nov 17, 2009
Question: I have a 401(k) plan that is not really doing anything great. It has gained about 10% in the last 15 years. Can I cash this in to pay off my student loans?
Answer: In general, when you withdraw money from a traditional individual retirement account such as a 401(k) or other qualified retirement plan before you turn age 59 1/2, you are subject to penalty of 10%. The taxable amount is also included in your taxable income. This 10% tax is in addition to regular income taxes. You can avoid this additional tax penalty if you meet certain criteria, but you cannot avoid including your retirement withdrawal from your taxable income.Read the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules to understand the general guidelines Congress put in place for distributions.
Instead of accepting a distribution of all of the funds from
your 401(k) consider a 401(k) loan. See the IRS document The Fix Is In: Common Plan Mistakes - Participant Loans in 401(k) Plans to see how to avoid common mistakes when taking a loan on your 401(k) account.
To learn more about distributions from a 401(k), see the Bills.com resource 401(k) Early Withdrawal Tax Penalty .
You did not ask, but if you chose to not take a distribution from your 401(k) -- and I urge you to avoid raiding your retirement account -- I suggest you would with your 401(k) plan administrator on moving your
To learn more about distributions from a 401(k), see the Bills.com resource 401(k) Early Withdrawal Tax Penalty .
You did not ask, but if you chose to not take a distribution from your 401(k) -- and I urge you to avoid raiding your retirement account -- I suggest you would with your 401(k) plan administrator on moving your
money into a higher-yielding fund. My guess is that you have your money in the default account, which most plan administrators select as the most conservative fund available. Diversify your portfolio and, depending on the number of years to your retirement, move an appropriate fraction of your funds into high-risk, high-yield accounts.
I hope the information provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
I hope the information provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
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