Withdrawing Money

Withdrawing Money from Your Account

The government encourages you to save in a retirement savings plan by giving you a big tax break. To protect that tax break, they make it tough to withdraw your money before retirement. But in certain special cases, you may be able to withdraw money from your retirement savings plan account before you retire or leave state service.

Withdrawing before-tax money
Before-tax contributions give you such great tax advantages, you simply cannot withdraw this money without getting hit with taxes. Even then, you're allowed to withdraw before-tax money only for certain IRS-defined financial hardships, and only after you've exhausted all other sources of money such as savings accounts and bank loans.These financial hardships may include:*

  • sudden and unexpected illness or accident to you or your dependents
  • loss of property due to casualty, or
  • other similar, equally severe and unforeseeable circumstances beyond your control
  • loss of income

The circumstances must result in severe financial hardship which can not be alleviated by any other means.

Withdrawals from the Plan may be subject to 20% federal tax withholding. However hardship withdrawals are not subject to the mandatory 20% withholding.

* Refer to your summary plan description for your plan's hardship withdrawal rules.

Withdrawals can sabotage your investment growth
Early withdrawals from your retirement savings plan can undo years of careful saving. Want proof? OK, here's an example:

Assume you make a withdrawal from your account for living expenses (that is, you won't be investing your withdrawal outside the plan).

The $5,232 early withdrawal at age 30 created a serious money drain from this long-term strategy. Without the withdrawals, the account grew to $298,723, before taxes. Factor in the withdrawal and the total account ends up at $249,030. Imagine this is your retirement account. Figure that taxes (at 20%) on the $5,232 withdrawal leaves you with about $4,100 in your 30-year-old pocket. Calculating the account balances when you're 65 — you will see an approximate difference of $50,000. Is $4,100 in your pocket at age 30 worth coming up about $50,000 short when you're ready to spend your savings at age 65?