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| Can I Withdraw Money Before I Retire? |
| As the advertising jingle goes, everybody needs
some money sometimes. It's not easy--or cheap--to get money out of your DC retirement plan before you turn 59 1/2, but the law does give you some wiggle room.
Rules vary from plan to plan, so always check out your employer's plan description
for details. |
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| The two basic ways of getting money from your account
are loans and hardship withdrawals. Loans, if your company offers them,
are generally the better option of the two: they're usually more flexible,
and you'll avoid paying penalties. But loans can put a big hurt on your retirement nest egg. |
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| Hardship withdrawals should be your last resort, when
you need money for a specific expense. There are only four allowable reasons
for a hardship withdrawal: to buy a first home, to pay college tuition
due in the next 12 months, to pay medical expenses, or to prevent eviction.
In each case, you'll have to prove that you have no other resources to
pay the expense. And you'll have to pay a 10% penalty on top of regular
taxes. That means you'll need to withdraw enough to cover both the needed
expense and the additional costs. But you won't be expected to pay back
the amount to your account. |
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| In addition, there are a few rare exceptions when you
can withdraw money without paying the
10% penalty. These include: |
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