The old adage says that only two things in life are guaranteed: death and taxes. While we may not have much control over the first of life’s guarantees, we can aim to fully understand and be prepared for the second, right? Unfortunately, this isn’t always the case; tax time often leaves people feeling overwhelmed and unclear. Things can get especially confusing when you receive a tax form you’ve never seen before or don’t know what to do with—like Form 1099-R.
Unfortunately, too few savers are aware that there are rules, penalties, and potential tax implications for taking money out of their 401(k) plan before they reach retirement age. A 401(k) distribution can come in many shapes and forms—so it’s important that you understand what your options are if you need to access those funds.
Picture this: you’ve left your office for the last time. You’ve spent the better part of your career preparing for this exact moment and have finally reached retirement bliss. Now imagine those magnificent golden years being ripped away from you—and in their place, many more years spent in the workforce. This nightmare is a reality for many American workers, due in part to poor planning, inadequate preparation, and insufficient financial education. And one of the most commonly misunderstood retirement basics? What really happens when you take an early withdrawal from your 401(k) plan.
Imagine it’s Wednesday afternoon and you’re on the downside of your work week. You’re looking forward to working in the yard, taking in a ballgame, or perhaps hitting the greens for a round of golf this coming weekend. Off in the Atlantic, a tropical storm is brewing, but forecasters predict it will spin harmlessly off the coast, trailing back into the mid-Atlantic. By Friday, the forecast changes and the storm is bearing down on you. A disaster looks imminent, so what do you do?