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How to Access Your 401k Savings
So you took the advice of all those financial planners and made sure to make regular contributions to your 401k savings fund. Unfortunately you need to access some of this money before you reach retirement. Will you be able to do so? Yes, you are able to get at your own retirement money, but the effects of this withdrawal upon your current finances and your future goals should not be taken lightly. Additionally, all plans are different and the rules from someone else’s 401k may be quite different from your own, and for that reason alone it is advisable to work with a financial professional before taking funds out of your retirement account.
The first option for accessing your 401k savings is through something known as a hardship withdrawal. The “hardship” is going to have to pass both IRS and the 401k plans qualifications, and though the government may agree that some medical conditions or disabilities are definitely a hardship situation your fund administrator may see differently. Additionally if you are under the age of 59.5 when you make the hardship withdrawal you are going to have to deal with a ten percent penalty on the total amount withdrawn and handle the taxes that will be required as the government recognizes the hardship withdrawal as income. So, between the difficulties in getting access to the monies and the further penalties and taxation, this may not be a good choice for a majority of people.
There are also non-hardship withdrawals available for some 401k accounts which allow the holder to redistribute the funds in the account in a manner they see better suited to their goals. For example, it could be to roll the funds into an IRA as a way of avoiding taxes and dealing with fewer administrative fees. Of course the sixty day time limit that always applies to retirement funds applies to this situation as well. The account holder must reinvest the entire sum into another retirement plan or face a ten percent penalty and tax liability.
Finally there are loan option which permits the 401k account holder to borrow against their savings. There are some that implement fairly heavy guidelines around this and it may even be impossible to get a loan, but usually the funds must be repaid within a five year period and the money is not suitable for rollover into an IRA.