How to Withdraw From Empower Retirement: Step-by-Step Guide

Quick answer

• Understand your withdrawal options: lump sum, installments, or rollovers.
• Gather necessary personal and account information before starting.
• Navigate Empower’s online portal or contact customer service for guidance.
• Be aware of tax implications, especially for early withdrawals.
• Consider consulting a financial advisor to optimize your withdrawal strategy.
• Review your plan documents for specific rules and potential penalties.

What to check first (before you withdraw)

Time Horizon

Your timeline for needing the money significantly impacts your withdrawal strategy. If you need funds immediately, a lump sum might be necessary, but it could trigger higher taxes. If you have more time, you might explore installment payments to spread out the tax burden.

Risk Tolerance

While withdrawals are about accessing funds, your comfort level with market fluctuations can still play a role, especially if you’re considering leaving money invested for a period. Understanding your risk tolerance helps determine if you should take all funds at once or manage them differently for a short time.

Emergency Fund

Before touching retirement savings, ensure you have a robust emergency fund. This fund should cover 3-6 months of living expenses. Withdrawing from retirement for non-emergency needs can incur penalties and taxes, and it depletes your future security.

Fees and Tax Impact

Every withdrawal method has potential fees and tax consequences. Early withdrawals (typically before age 59 ½) often come with a 10% IRS penalty on top of ordinary income taxes. Understand how your specific withdrawal will be taxed by the IRS and any state income tax authorities. Also, check for any administrative fees associated with the withdrawal process.

Account Type

Empower Retirement manages various types of accounts, including 401(k)s, IRAs, and other retirement plans. The rules for withdrawals, including required minimum distributions (RMDs), penalties, and tax treatments, can differ significantly based on the account type. Always refer to your specific plan documents.

Step-by-step (simple workflow)

1. Determine Your Need and Timing

What to do: Clearly define why you need to withdraw funds and when you need them. Is it for retirement income, a major purchase, or an emergency?
What “good” looks like: You have a clear, justifiable reason and a specific timeframe for needing the money.
A common mistake and how to avoid it: Withdrawing impulsively without a clear plan. Avoid this by journaling your reasons and potential consequences.

2. Review Your Plan Documents

What to do: Locate and read your retirement plan’s summary plan description (SPD) or similar documents.
What “good” looks like: You understand the specific rules for withdrawals, including any early withdrawal penalties, required minimum distribution (RMD) rules, and available withdrawal options.
A common mistake and how to avoid it: Assuming all retirement plans have the same withdrawal rules. Avoid this by reading your specific plan’s documentation.

3. Assess Your Account Balance and Eligibility

What to do: Check your current account balance and confirm your eligibility for withdrawals based on your age and plan rules.
What “good” looks like: You know the exact amount available for withdrawal and that you meet any age or service requirements.
A common mistake and how to avoid it: Not knowing the exact vested balance. Avoid this by logging into your Empower account or contacting them directly.

4. Understand Tax Implications

What to do: Research how your withdrawal will be taxed. Consult tax forms like Form 1099-R and consider consulting a tax professional.
What “good” looks like: You have a clear understanding of federal and state income taxes, and potential early withdrawal penalties.
A common mistake and how to avoid it: Underestimating the tax bite. Avoid this by using tax calculators and consulting a tax advisor.

5. Choose Your Withdrawal Method

What to do: Decide between a lump-sum distribution, periodic payments, or a direct rollover to another account.
What “good” looks like: You’ve selected the method that best aligns with your financial needs, tax situation, and long-term goals.
A common mistake and how to avoid it: Opting for a lump sum when periodic payments would be more tax-efficient. Avoid this by comparing the tax outcomes of different methods.

6. Initiate the Withdrawal Process

What to do: Log in to your Empower Retirement online account or call their customer service to request a withdrawal.
What “good” looks like: You are guided through the necessary forms and procedures by Empower’s system or representatives.
A common mistake and how to avoid it: Starting the process without all required documentation. Avoid this by preparing all necessary personal and account information beforehand.

7. Complete and Submit Required Forms

What to do: Fill out all withdrawal request forms accurately and completely. This may include a distribution request form, tax withholding forms (like W-4P), and direct deposit information.
What “good” looks like: All forms are filled out without errors, and you have copies for your records.
A common mistake and how to avoid it: Incorrectly filling out tax withholding forms, leading to under- or over-withholding. Avoid this by carefully reviewing the instructions on each form.

8. Wait for Processing and Receive Funds

What to do: Allow Empower Retirement the standard processing time for your withdrawal request. Funds will be disbursed according to your chosen method.
What “good” looks like: You receive your funds within the expected timeframe and in the correct amount.
A common mistake and how to avoid it: Expecting instant funds. Avoid this by noting Empower’s stated processing times.

9. Track and Report Your Withdrawal

What to do: Keep records of your withdrawal and ensure you receive a Form 1099-R from Empower by tax season. Report the withdrawal on your tax return.
What “good” looks like: You have accurate records and correctly report the income and any applicable taxes.
A common mistake and how to avoid it: Forgetting to report the withdrawal on your taxes. Avoid this by keeping all withdrawal statements and Form 1099-R in a safe place.

Risk and diversification (plain language)

When withdrawing from retirement accounts, understanding risk and diversification is still relevant, especially if you’re transitioning to retirement income.

• Market Risk: The possibility that investment values will decline due to economic or other factors. For example, if the stock market drops, your investments might be worth less than you expected.
• Inflation Risk: The risk that the purchasing power of your money will decrease over time. If your withdrawals don’t keep pace with inflation, your money will buy less in the future.
• Longevity Risk: The risk of outliving your retirement savings. This is why careful planning of withdrawals is crucial to ensure your money lasts.
• Interest Rate Risk: The risk that the value of your fixed-income investments (like bonds) will decline if interest rates rise.
• Sequence of Returns Risk: This is a significant risk when you start withdrawing funds. If negative market returns occur early in your retirement, it can severely deplete your savings faster than anticipated, even if subsequent years have positive returns. For example, experiencing a market crash in your first few years of retirement can be devastating.
• Diversification: Spreading your investments across different asset classes (stocks, bonds, real estate, etc.) to reduce overall risk. If one asset class performs poorly, others may perform well, cushioning the impact.
• Asset Allocation: The mix of different asset classes in your portfolio. A well-diversified portfolio typically has a strategic asset allocation tailored to your risk tolerance and time horizon.
• Rebalancing: Periodically adjusting your portfolio to maintain your target asset allocation. If stocks have grown significantly, you might sell some and buy bonds to get back to your desired mix.

What to do during market drops: During market downturns, it’s crucial to stick to your plan. Avoid panic selling, as this locks in losses. If you are still accumulating, market drops can be an opportunity to buy investments at lower prices. If you are withdrawing, review your withdrawal rate and asset allocation to ensure it remains sustainable. Consider if a temporary reduction in spending or a shift to more conservative assets might be prudent, but always consult your financial advisor before making drastic changes.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not understanding withdrawal options	Choosing a less tax-efficient or unsuitable method, leading to unnecessary taxes or penalties.	Thoroughly research all available withdrawal methods (lump sum, installments, rollover) and their implications.
Ignoring tax consequences	Unexpectedly high tax bills, potential penalties, and reduced net withdrawal amounts.	Consult a tax professional and review tax forms (like 1099-R) carefully. Understand federal and state income tax rates and early withdrawal penalties.
Withdrawing before age 59 ½ without reason	A 10% IRS early withdrawal penalty in addition to ordinary income taxes.	Explore penalty-free withdrawal exceptions (e.g., disability, unreimbursed medical expenses) or consider a Roth IRA if contributions were made long ago.
Failing to have an emergency fund	Depleting retirement savings for unexpected expenses, incurring taxes and penalties, and jeopardizing future income.	Build and maintain a separate emergency fund covering 3-6 months of living expenses before touching retirement funds.
Not reviewing plan-specific rules	Violating plan terms, leading to unexpected fees, delays, or even inability to withdraw funds as planned.	Read your Summary Plan Description (SPD) and consult Empower Retirement’s customer service for your specific account rules.
Making emotional decisions during market dips	Selling investments at a loss, missing potential recovery, and permanently reducing retirement nest egg.	Stick to your long-term investment strategy. Consult a financial advisor before making significant changes during volatile market periods.
Incorrectly completing tax withholding forms	Receiving a smaller-than-expected refund or owing a significant amount at tax time.	Carefully review IRS instructions for Form W-4P and consult with a tax advisor if unsure about the correct withholding amount.
Not tracking or reporting withdrawals	Potential IRS penalties for underreporting income and complications during tax filing.	Keep detailed records of all withdrawals and ensure you receive and accurately file Form 1099-R with your tax return.
Leaving money in a high-fee account unnecessarily	Eroding your investment growth over time due to excessive fees, reducing your overall returns.	Understand all fees associated with your account and withdrawal process. Consider rolling over to a lower-fee account if appropriate.
Not planning for required minimum distributions (RMDs)	Facing significant IRS penalties for failing to take RMDs once you reach the required age.	Be aware of RMD age requirements (currently 73 for most) and plan your withdrawals accordingly to avoid penalties.

Decision rules (simple if/then)

• If you need funds for a non-emergency and are under age 59 ½, then explore penalty-free withdrawal exceptions first because the 10% IRS penalty can significantly reduce your withdrawal amount.
• If your withdrawal is for retirement income and you’re over 59 ½, then consider periodic payments over a lump sum because this can help manage your tax liability over multiple years.
• If you have a substantial emergency expense and no adequate emergency fund, then consider a withdrawal from your retirement account, but be prepared for taxes and potential penalties because it’s generally better than taking on high-interest debt.
• If you are considering a lump-sum withdrawal, then consult with a tax advisor beforehand because they can help you estimate the tax impact and suggest strategies to mitigate it.
• If you are eligible for Required Minimum Distributions (RMDs), then ensure you take them by the deadline each year because failure to do so results in a substantial IRS penalty.
• If you are planning to withdraw funds and roll them over into another retirement account (like an IRA), then opt for a direct rollover whenever possible because this avoids potential withholding taxes and ensures the money goes directly to the new custodian.
• If you are unsure about the best withdrawal strategy for your situation, then consult with a fee-only financial advisor because they can provide objective advice tailored to your specific financial goals and circumstances.
• If your withdrawal is for a qualified education expense, then investigate if it qualifies for an exception to the 10% early withdrawal penalty because some educational withdrawals may be exempt.
• If you have made Roth IRA contributions, then understand that you can withdraw your contributions (but not earnings) tax-free and penalty-free at any time because these funds have already been taxed.
• If your withdrawal is due to a permanent disability, then check if this qualifies for an exception to the 10% early withdrawal penalty because the IRS often waives this penalty for disabled individuals.

FAQ

Q1: How do I start the withdrawal process with Empower Retirement?

A1: You can typically initiate a withdrawal by logging into your Empower Retirement online account and navigating to the “Withdrawals” or “Distributions” section. Alternatively, you can call Empower’s customer service for assistance.

Q2: What documents do I need to withdraw from my Empower account?

A2: You’ll generally need your personal identification information, account number, and details about the withdrawal amount and method. You’ll also likely need to complete tax withholding forms.

Q3: Are there penalties for withdrawing money early from Empower Retirement?

A3: Yes, if you withdraw from most retirement accounts (like a 401(k) or traditional IRA) before age 59 ½, you may be subject to a 10% IRS penalty in addition to regular income taxes, unless you qualify for an exception.

Q4: How long does it take to receive my withdrawal from Empower?

A4: Processing times can vary, but it typically takes a few business days to a couple of weeks from the time your request is approved. Check with Empower for their specific timelines.

Q5: Can I roll over my Empower Retirement funds to another account?

A5: Yes, you can often roll over funds from an Empower account to another eligible retirement account, such as an IRA or another employer’s 401(k). A direct rollover is usually recommended.

Q6: What happens if I don’t take my Required Minimum Distributions (RMDs) from Empower?

A6: If you fail to take your RMDs from accounts like traditional IRAs or 401(k)s once you reach the required age, you could face a significant IRS penalty, often 50% of the amount you should have withdrawn.

Q7: Will my withdrawal from Empower Retirement be taxed?

A7: Withdrawals from traditional retirement accounts (like 401(k)s and traditional IRAs) are generally taxed as ordinary income. Withdrawals from Roth IRAs are typically tax-free if qualified.

Q8: Can I withdraw funds from Empower for a home purchase?

A8: Some retirement plans may allow penalty-free withdrawals for a first-time home purchase, but rules vary significantly. Consult your plan documents and a financial advisor.

What this page does NOT cover (and where to go next)

• Specific investment advice for your portfolio.
• Detailed tax planning strategies for complex financial situations.
• Legal advice regarding estate planning or beneficiary designations.
• Information on specific employer-sponsored plan features not managed by Empower.

Where to go next:

• Consult with a qualified financial advisor.
• Review IRS publications on retirement plan distributions.
• Explore resources on tax planning and preparation.
• Seek guidance from your employer’s HR department regarding your specific retirement plan.