If you’ve found yourself short of cash over the last few years, you’ve probably thought about cashing out your 401k plan. Although these plans are designed for retirement savings, it is possible to make a withdrawal from a 401k, but you may be penalised for doing so.
Investment house Fidelity reported that 2.2 per cent of all their 401k participants had made a withdrawal at some point in 2010, up from 2 per cent in 2009.
A Mercer 401k is one of the most popular 401k plans in the US and so our guide asks the question ‘Can I withdraw from my Mercer 401k?’
The Mercer 401k
Mercer is a name that is known and trusted in the financial sector and they offer a number of plans that can be tailored to fit a company and an employee’s needs.
The 401k plans offered by Mercer generally include the standard 401k benefits and defined employee contributions. Employer matching can be a feature up to a defined percentage, and the maximum amount of contributions allowed by the IRS can be made each year.
Many employers choose Mercer 401k plans because Mercer has a global reputation for retirement investment and for excellent customer service and financial advice.
Can I Withdraw From My Mercer 401k?
It is possible to withdraw from your Mercer 401k plan although you will normally pay a penalty for doing so. This is an additional 10 per cent early distribution penalty tax and you will generally pay it if you have not reached at least age 59 ½ when you take your distribution. This is common to all 401k plans and not unique to a Mercer 401k.
However, in certain circumstances you can make a withdrawal without paying the 10 per cent tax penalty. If you’re under the age of 59 ½ you can take a distribution from your Mercer 401k plan if, for example:
You become disabled You die and the account is paid to your beneficiary You make an allowable medical expense deduction You terminate your employment and you are over the age of 55
When you withdraw funds from your Mercer 401k you will often find that the withdrawal is taxable. This means that not only do you have to report this as income on your federal income tax return, but you are also subject to an additional 10 per cent penalty.
CNN reports that ‘David Wray, president of the Profit Sharing/401(k) Council of America, said that people making hardship withdrawals could pay a penalty of up to 40 per cent, once state and federal taxes are added to the 10 per cent penalty.’
As well as the penalties for withdrawing from your Mercer 401k, you should also remember that the plan is designed to provide income in your retirement. Withdrawing cash from your 401k plan early means that you are diminishing your retirement fund. And, this is not only by the amount you withdraw but by the amount that money would have grown between now and your retirement.