However, you can rollover your account into another tax-advantaged account such as a Roth IRA to use for other expenses.
Can I use my 401k funds to purchase an annuity or other type of retirement plan?
Yes, you can use your 401k funds to purchase an annuity or other type of retirement plan. This allows you to continue saving for retirement even if you leave your job or retire early.
How will my 401k contributions be taxed when I withdraw them in retirement?
Your 401k contributions will be taxed at your ordinary income tax rate when you withdraw them in retirement. For example, if you are in the 25% tax bracket and make $50,000 per year,
your taxable income would be $25,000 per year or 20%. This means that only 80% of your contributions are tax-free.
If you take withdrawals from your 401k before age 59 and half, the IRS will assess a penalty of up to 25% on any amount withdrawn prior to that time.
What are some other tax-advantaged retirement account options that I may be eligible for?
There are several other tax-advantaged retirement account options that you may be eligible for. These include traditional and Roth IRAs, SIMPLE IRAs, SEP IRA plans, defined benefit pension plans and more.
If you would like to learn more about these types of accounts, please contact your employer or financial advisor.