It is important to note that you won't be able to withdraw funds from your 401K until you are 59 and a half years old. If you take out funds before this age, you could receive a tax penalty for doing so. But once you are 59 and a half, you'll be able to start taking the distributions from your 401K. However, you can leave the money in the account if you don't need to access it right away. But like the traditional IRA, you will be required to take out distributions beginning at age 72. You will also need to report the distributions on your taxes since the IRS sees this as ordinary income. Here are some ways to use your 401K after retirement.
Different Methods of Cashing Out Your 401K
You might decide not to take any of the funds out even after you turn 59 and a half. This means that your money continues to grow tax-free while you use your taxable investment account to get you through the first decade of retirement. Another method would be to roll over your 401K into an IRA. There are times when it makes sense to do this. If you seek out greater investment options that go beyond what your 401K can offer, then a rollover is a great idea. This is especially appealing since most 401K plans don't allow you to rebalance your portfolio. If you also seek lower management fees, you should consider a rollover. Depending on your plan, you can take out scheduled monthly or quarterly distributions from your 401K.
You Can Withdraw Funds at Age 55 Under Certain Circumstances
If you're 55 years old and you no longer work for the company that offered the 401K plan, you can take out funds without penalty. Keep in mind that this only applies to the assets that are in your former employer's 401K plan. It will not apply once you roll over the funds into an IRA. This exemption also only applies to the day you stopped working for the company. You can also do this if you're permanently disabled.
Smart Ways to Spend and Manage Retirement Income
Suppose you can start taking out funds from your 401K this year. Here are some smart ways to use this money. Create a budget where you list all of your fixed expenses and the dates that certain bills are due. Cut out any unnecessary expenses that will eat into your retirement income. Continue to add to your investment accounts so that more money grows over time. Make sure that you budget for Medicare-related expenses once you turn 65. If you have grandchildren, maybe you can create a custodial account for them that you would contribute to on a regular basis. Finally, have fun with your retirement income.
You've worked diligently for years and now is the time to pursue the goals that matter the most to you.When you have retirement savings from your 401K plan and other accounts, you have the financial safety net you need to pursue these goals.