23 Dec Can I take from my 401(k) to fix up my house?

Q. I’m 60. I want to do a cash withdrawal from my 401(k). I don’t have a coronavirus-related problem. I just want to fix things on my house or invest in an RV? Can I do that?
— Making plans

A. You have more options because you are 60.

You can take a withdrawal from your 401(k), which would be a taxable distribution.

An additional early distribution penalty of 10% would not apply to you since you are over the age of 59 ½, said Gail Rosen, a Martinsville-based certified public accountant. You don’t need to worry about CARES Act provisions that would eliminate that penalty.

“Let’s assume you are single, take a cash withdrawal from your 401(k) of $20,000 and your taxable income without this distribution is $50,000,” she said. “In this scenario you would owe $5,500 in tax computed by taking $20,000 401(k) withdrawal and 27.5%, your combined tax bracket for federal and New Jersey tax purposes.”

Because the distribution isn’t related to COVID, you can’t take advantage of a CARES Act rule that would allow you to pay the taxes over a three-year period. 

But, Rosen warned, retirement money is for retirement.

You didn’t say what other retirement resources you have or how much you have saved for your later years.

“You do not want to rely on Social Security, and statistics show that many people are not saving enough for the day they do not work anymore,” she said. “I strongly encourage you to try not to withdraw money from your 401(k).”

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This story was originally published on Dec. 23, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.