Take cash from your retirement plan.
You may take all of your money out of your retirement plan by taking a lump-sum distribution, but you may lose a substantial amount of your savings in the process. Once you take all of your money out of your retirement plan, you lose your tax-deferred investment benefits.
Here’s what you can expect if you cash out:
- 20% will be immediately withheld for federal taxes.
- 10% IRS early withdrawal penalty if you are under the age of 59 ½ (additional state penalties may apply).
- Depending on your tax bracket, you may have to pay additional taxes when you file your federal income taxes. For example, if you are in the 28% tax bracket, you will have to pay an additional 8% when you file your federal income taxes (20% was already taken in advance when you cashed out). Additional state and local taxes may also apply. If your tax rate is lower than 20%, you may receive money back from the federal government when you file your annual taxes.
- You have lost a source of retirement savings. Your money is no longer earning tax-deferred interest and you have sacrificed part of your long-term investment strategy for short-term gain.
For more information regarding the tax consequences of a lump-sum distribution, you may consider seeking advice from a professional financial or tax advisor.
Transamerica Retirement Solutions and its representatives cannot give ERISA, tax, or legal advice. This material is provided for informational purposes only based on our understanding of material provided and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must consult and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing this material and presenting it accurately, Transamerica Retirement Solutions disclaims any expressed or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.