There are a ton of different types of retirement savings accounts that you can choose from. It can get extremely confusing and we definitely understand why. Each plan and savings accounts have different rules regarding contributions, investments and when and how you can withdrawal. Even if you are the best saver, you can still be hit with some snags if you don’t pay attention. Here are some mistakes you need to avoid.
1. Exceptions to the 10% Penalty. If you take a withdrawal from your IRA or 401(k) before you are older than 59½, you can be subject to paying income tax on that amount. Not only that, but you will also have to pay a 10% early withdrawal fee as well on that taxable amount. Claiming financial hardship does not count as a reason to get you out of paying this 10%.
2. Using 401(k) to pay for college. While you can take money out of an IRA without penalty, you can’t do the same from your 401(k). You can’t even do so to pay for your college student loans. If you’re leaving your job to take some college classes and get that degree, make sure to move your money from your 401(k) into a IRA before you try and pay tuition or bills.
3. Leaving less than $5,000 at an old job. If you leave a 401(k) at your old job after you leave, that is less than $5,000, your old employer could take your money and place it into an IRA with a lot of fees.