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You must consider your options carefully when withdrawing money early from your pension. You may get hit with a 10-percent tax penalty from any early withdrawal before the age of 59 1/2. The only exceptions to this penalty are if you have been laid off or you leave your job at the age of 55. Another factor is based on the type of pension plan. Cash or deferred arrangement plans, such as a 401(k) or a profit-sharing pension, allow for early withdrawal. Defined benefit plans that give you a specified monthly benefit at retirement do not allow withdrawals under any circumstances. Always contact your employer or plan administrator about your options.
If you are over age 67 when you begin making withdrawals from your pension plan, you'll avoid the early withdrawal penalty. This penalty applies only if you withdraw money from your pension before you reach age 59 1/2. If you trigger the early withdrawal penalty, you will owe a penalty tax equal to 10 percent of the amount of your withdrawal. This tax applies in addition to any income tax you may owe on the payments you receive.
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