Education

If you decide to use your employer-sponsored 401(k) for educational purposes, be aware of the rules and regulations that govern these early withdrawals, which are not penalty-free:

  • Typically, there is a 10% early withdrawal penalty for distributions made before 59½.
  • Since the money was invested tax-deferred, you’ll need to pay income tax on the withdrawn amount, and state taxes may also apply depending on your location. Typically a withdrawal counts towards your taxable income for the year, which could push you into a higher tax bracket.