To withdraw money from your Empower 401k, you’ll need to log into your account, navigate to the withdrawals section, select the type of withdrawal you want to make, enter the amount, and review the details. Once you confirm the transaction, the funds will be deposited into your bank account. It’s important to note that there may be tax implications and early withdrawal penalties associated with 401k withdrawals, so it’s wise to consult with a financial advisor before making a decision.
Early Withdrawals and Penalties
Withdrawing funds from your Empower 401k before age 59½ may result in penalties. These penalties include:
- 10% early withdrawal penalty imposed by the IRS.
- Additional taxes on the withdrawn amount, as it is considered taxable income.
Exceptions to Early Withdrawal Penalties
There are certain exceptions to the early withdrawal penalties, including:
- Substantially equal periodic payments (SEPP): This allows you to withdraw funds in approximately equal amounts over your life expectancy or a similar period.
- Disability: If you are disabled, you may be able to withdraw funds penalty-free.
- Qualified higher education expenses: Withdrawals used to pay for qualified higher education expenses for you, your spouse, or dependents are not subject to the 10% penalty.
- Medical expenses: Withdrawals used to pay for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) are not subject to the 10% penalty.
- First-time home purchase: You may be able to withdraw up to $10,000 penalty-free to purchase a first home.
Taxes on Withdrawals
When you withdraw funds from your Empower 401k, they are taxed as ordinary income, meaning they are subject to your current income tax rate. The amount of tax withheld depends on your specific tax situation.
Table Summarizing Withdrawals
| Withdrawal Type | Penalty | Taxation |
|---|---|---|
| Early Withdrawal (before age 59½) | 10% penalty + income tax | Taxed as ordinary income |
| Substantially Equal Periodic Payments (SEPP) | No penalty | Taxed as ordinary income |
| Disability | No penalty | Taxed as ordinary income |
| Qualified Higher Education Expenses | No penalty | Tax-free |
| Medical Expenses | No penalty | Tax-free |
| First-Time Home Purchase | No penalty (up to $10,000) | Taxed as ordinary income |
Withdrawals from Empower 401k
Withdrawing funds from your Empower 401k account involves adherence to specific rules and regulations, including Required Minimum Distributions (RMDs) when applicable.
Required Minimum Distributions (RMDs)
Once you reach age 72 (73 if you turned 72 in 2023), you are required to take minimum annual withdrawals from your retirement accounts, including 401ks. These Required Minimum Distributions (RMDs) are calculated based on your account balance and life expectancy. Failing to withdraw the required amount can result in penalties.
Withdrawal Options
- Direct Withdrawal: Transfer funds directly to your bank account.
- Check: Request a check to be mailed to your address.
- Rollover: Move funds to another eligible retirement account, such as an IRA.
- Loan: Borrow against your account balance, subject to specific guidelines and repayment terms.
- Hardship Withdrawal: Withdraw funds if you meet certain financial hardship criteria.
Withdrawal Process
- Contact Empower to initiate a withdrawal request.
- Provide relevant information, such as account number and withdrawal amount.
- Choose your preferred withdrawal method and provide necessary details.
Taxes and Penalties
Withdrawals from your 401k are subject to income taxes. Additionally, if you withdraw funds before age 59½, you may face a 10% early withdrawal penalty unless an exception applies.
| Withdrawal Type | Age Limit | Tax Treatment |
|---|---|---|
| Qualified Distribution | 59½ or older | Income tax only |
| Early Withdrawal | Under 59½ | Income tax + 10% penalty |
| Required Minimum Distribution (RMD) | 72 or older | Income tax only |
How Do I Withdraw From My Empower 401k?
There are two main ways to withdraw money from your Empower 401k: loans and hardship withdrawals.
Loans
A loan is a way to borrow money from your 401k account and repay it over time. The terms of the loan, such as the interest rate and repayment period, will vary depending on your plan. To be eligible for a loan, you must have been a participant in the plan for at least two years and have a vested balance of at least $1,000. The maximum amount you can borrow is 50% of your vested balance, or $50,000, whichever is less.
- You must repay the loan within five years, unless you use the money to buy a primary residence.
- If you do not repay the loan on time, the outstanding balance will be treated as a taxable distribution and you may have to pay a 10% early withdrawal penalty.
Hardship Withdrawals
A hardship withdrawal is a way to withdraw money from your 401k account if you have an immediate and heavy financial need. To be eligible for a hardship withdrawal, you must meet one of the following criteria:
- You have medical expenses that you cannot afford to pay.
- You have lost your job and have no other source of income.
- You are facing foreclosure or eviction.
- You need to repair or replace your primary residence due to a natural disaster.
The amount of money you can withdraw is limited to the amount you need to cover your immediate financial need. You will have to provide documentation to your plan administrator to prove your need.
Hardship withdrawals are not taxed, but they may be subject to a 10% early withdrawal penalty if you are under age 59½. You will also have to pay taxes on any earnings that you withdraw.
| Withdrawal Type | Eligibility Requirements | Limits | Taxes and Penalties |
|---|---|---|---|
| Loan | Two years of participation, vested balance of at least $1,000 | 50% of vested balance or $50,000, whichever is less | Repayment within five years, 10% penalty if not repaid on time |
| Hardship Withdrawal | Immediate and heavy financial need | Limited to amount needed to cover need | Not taxed, but may be subject to 10% penalty if under age 59½ |
Taxable vs. Nontaxable Withdrawals
When you withdraw money from your Empower 401k, you may have to pay taxes on the withdrawal. The taxability of your withdrawal depends on your age, whether you are still working, and the type of withdrawal you make.
Taxable Withdrawals
- Withdrawals made before age 59½ are subject to a 10% early withdrawal penalty, in addition to income taxes.
- Withdrawals made after age 59½ are subject to income taxes only.
Nontaxable Withdrawals
- Withdrawals made after age 59½ that are used to pay for qualified expenses, such as medical expenses, education expenses, or a first-time home purchase.
- Withdrawals made after age 72 that are required minimum distributions (RMDs).
| Age | Employed Status | Withdrawal Type | Taxability |
|---|---|---|---|
| Under 59½ | Working | Regular Withdrawal | Early withdrawal penalty + income taxes |
| 59½ or older | Working | Regular Withdrawal | Income taxes only |
| 59½ or older | Not Working | Regular Withdrawal | Income taxes only |
| After 59½ | N/A | Qualified Withdrawal | Nontaxable |
| After 72 | N/A | RMD | Nontaxable |
Well, there you have it! Withdrawing money from your Empower 401(k) is actually a breeze, as long as you follow the steps we’ve laid out for you today. Boom! You’re all set.
Thanks so much for giving this article a read. If you have any more 401(k)-related questions, feel free to swing back by anytime. We’ll be here, dishing out all the knowledge you need to master your financial future. See ya soon!