Is There Any Way to Avoid the 10% Penalty on a 401K Withdrawal?

I wish there was an easy way to avoid the penalties for 401K withdrawals. Not only have I been hit with the 10% penalty I have had pay $7,500 to the I.R.S. the following year twice.

The only way you can avoid paying the penalties is to be 55 years old or older. You do have to pay normal income taxes however if you take a withdrawal from your 401K.

I am going to tell you that I made a big mistake making withdrawals from my 401K. Not only did I lose the money that was going towards my retirement, I had to dish more money out to pay the taxes. Unless, you are absolutely desperate and it is practically a life and death situation, hold off from making withdrawals from your retirement accounts for as long as you can.

Tapping into your retirement savings should be considered as a last resort. "All you have to lose is your debt," if you pay off your credit cards with your 401K, but it could be worse "All you have to lose is your retirement," if you do.

Now there is a way to set up a withdrawal plan that would allow you to take out substantial and equal periodic payments from your retirement account without paying the 10% penalty. You really need to talk to a tax advisor to determine how this works, but under Rule 72t of the IRS code you are able to avoid the 10% penalty. It is extremely complicated and covers many retirement plans besides 401Ks.

Like I said before do everything you can to avoid taking a 401k withdrawal before you are at retirement age. You'll thank me later.

[This post is written and copyrighted by Financial Elite (http://financialelite.blogspot.com/ ).]

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