*NOTE: if you’re looking for information about the CARES Act withdrawal, see the article 401k Distributions Due to Coronavirus (CRDs) for more details.
When hard times befall you, you may wonder if there is a way withdraw money from your 401k plan. In some cases you can get to the funds for a hardship withdrawal, but if you’re under age 59½ you will likely owe the 10% early withdrawal penalty. The term 401k is used throughout this article, but these options apply to all qualified plans, including 403b, 457, etc.. These rules are not for IRA withdrawals (although some are similar) – see the article at this link for 19 Ways to Withdraw IRA Funds Without Penalty.
Generally it’s difficult to withdraw money from your 401k, that’s part of the value of a 401k plan – a sort of forced discipline that requires you to leave your savings alone until retirement or face some significant penalties. Many 401k plans have options available to get your hands on the money (like a hardship withdrawal), but most have substantial qualifications that are tough to meet.
Your withdrawal of money from the 401k plan will result in taxation of the withdrawal, and if you do not meet one of the exceptions, a penalty as well. See the article Taxes and the 401k Withdrawal for more details about how the taxation works.
In addition to withdrawing money from a 401k plan, many plans offer the option to take a loan from your 401k. This can be a better alternative than the withdrawal. A loan is often the only way you can access the money in a 401k if you’re still employed by that company. The article at this link explains the differences between a 401k loan and a 401k withdrawal.
The list below is not all-inclusive, and each 401k plan administrator may have different restrictions or may not allow the option at all.
We’ll start with the obvious methods, all of which generally require the plan participant to leave employment:
1. Normal – Begin after age 59½ after leaving employment at any age
2. Age 55 Exception – Begin after age 55, having left employment after age 55 (also read about the potential Downside to the Age 55 Rule for 401k Plans)
3. Age 50 Exception – Begin after age 50, having left employment after age 50 from a job in a public safety profession, such as police, firefighters or emergency medical services for a governmental unit
4. Required Minimum Distributions – technically this one is covered by #1 above for most circumstances, but sometimes RMD is required of a person who has inherited a 401k, regardless of age.
5. Death – If you die, your beneficiaries are able to take distributions from your 401k without penalty.
6. Disability – If you are “totally and permanently disabled” by IRS definition, you may be able to take distributions from your 401k without penalty.
Now we’ll move into some of the not-so-obvious methods, starting with SOSEPP.
Series Of Substantially Equal Periodic Payments
This is the classic Section 72t (IRC Section 72(t)) method for early withdrawal exceptions to the penalty. Essentially you agree to continue taking the same amount from your plan for the greater of five years or until you reach age 59½. There are three methods of SOSEPP:
7. Required Minimum Distribution method – uses the IRS RMD table to determine your Equal Payments.
8. Fixed Amortization method – in this method, you calculate your Equal Payment based on one of three life expectancy tables published by the IRS.
9. Fixed Annuitization method – this method uses an annuitization factor published by the IRS to determine your Equal Payments.
Section 72(t) provides additional methods for premature distribution exceptions which can occur before leaving employment (if the plan allows):
10. High Unreimbursed Medical Expenses – for yourself, your spouse, or your qualified dependent. If you face these expenses, you may be allowed to withdraw a limited amount (the actual expenses minus 10% of your AGI) without penalty.
11. Corrective Distributions of Excess Contributions – under certain conditions, when excess contributions are made to an account these can be returned without penalty.
12. IRS Levy – when the IRS levies an account for unpaid taxes and/or penalties, this distribution is generally not subject to penalty.
And lastly, here are a few additional ways that you can withdraw your 401k funds without penalty:
13. Auto-Enrollment – within time limits, when you are automatically enrolled in a 401k plan and you do not wish to be enrolled, permissive distributions may be allowed without penalty.
14. Qualified Reservist – If you were called to duty after September 11, 2001 and serve for at least 6 months, you may be allowed to make a withdrawal from your 401k during your active duty period without penalty.
15. Divorce – If a Qualified Domestic Relations Order (QDRO) is drafted as part of a divorce decree with the order to assign or divide and assign a portion of the assets of your 401k plan with your former spouse, this withdrawal is penalty-free
16. Roth IRA or Roth 401k Conversion – when you convert your funds from a 401k plan to a Roth IRA or Roth 401k, although you pay tax on the distribution, there is no 10% penalty applied. Usually you must have left employment to enact a conversion to Roth IRA, but not a Roth 401k.
17. (a bonus!) Birth or Adoption – With the passage of the SECURE Act of 2019, a new qualified exception is now available – to offset expenses for the birth of a child or an adoption. Each taxpayer may withdraw up to $5,000 (within one year of the birth or when the adoption is finalized) to pay for expenses associated with a birth or adoption. You are not allowed to take the distribution prior to the birth of the child or the adoption is finalized, only after the fact. You also have the option of paying this back (rules for the payback are still being developed at this time).
*18. (2020 bonus!) CARES Act withdrawal – With the passage of the CARES Act in early 2020, there is a new option available for 401(k) withdrawal without penalty: If you are impacted by COVID-19 (and the list of impacts is pretty comprehensive), you can withdraw up to $100,000 from your 401(k) plan in 2020 without penalty. Plus you can waive the standard 20% withholding, and furthermore, you can spread out the tax burden over three years (2020, 2021 & 2022). On top of that, you have the option of repaying (rolling back) the withdrawal at any point during those same 3 years.
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Quite an informative read! You can withdraw money from the 401k plan using any of these 18 methods if allowed by the plan administrator. However, I think it isn’t an advisable choice, especially due to the pandemic. It has created uncertainty in the market and you should protect your financial future at all costs.
Great points, Leah. Thank you!
I have 25k in ROTH IRA. I am only 40 yrs old. I want to withdraw early because i don’t have a job, i have to pay back student loans & i have a new baby to take care. If i withdraw it all out, do i have to pay tax in 2021 or i wait until 2023 to file tax for early IRA withdrawal? i am confusing about this.
Your contributions to the Roth IRA can be withdrawn tax-free at any time.
Any growth that has occurred within the account may be withdrawn as well, but generally a penalty of 10% will apply to this withdrawal, as well as income tax due on the distribution. However, if you were impacted by COVID-19, you may be able to bypass the 10% penalty. In addition, you will have the option of spreading out the tax owed on the distribution over the coming 3 tax years (or you can pay it all on your 2020 return due in 2021).
Lastly, you have the option of replacing the withdrawn funds, both your original contributions taken tax-free as well as the growth on the contributions, at any time during the coming 3 years. If you re-deposit the funds into your Roth IRA at some point after a portion of the tax has been paid, you’ll then amend those tax returns from the intervening years to get back the tax owed.
Aren’t qualified withdrawals Tax-Free? So in the case of the covid-19, would these hardship type withdrawals be considered “qualified”? Making them tax-free as well as penalty free?
Withdrawals from 401k plans, unless they were Roth-designated or non-deductible contributions, are always taxable as ordinary income. The COVID-19 provisions only apply to the early withdrawal penalty – these withdrawals are otherwise taxable as ordinary income.
hello i am disabled and on SSDI i get a small amout of money everymonth which is barley enough ,my sister passed away and left me her 401k they want me to fill out a 120 month annuity or a lifetime monthly payment form i have no clue what to do if i fill this form out and start receiving this money will it effect my SSDI will i stop getting it ? please help thanks so much
Sorry, but I don’t know the answer for you. Your best bet is to talk to SSA about it, to find out what impact there will be when you start receiving this extra money.
I have an IRA, and been losing money all the way, non stop. Called and asked to remove it from the market, because they didn’t move it to protect my money, when they was in charge of the account, not even call me.
I request moved the money to the “safe” side, out of the market and found in a week lose another ridiculous amount of money. Can I just transfer my IRA to a basic CD in order to avoid lose my retirement here? Cares Act will apply in this scenario?
This is between you and your IRA custodian – and I don’t think there’s anything in the CARES Act to help you out with this situation.
I am a 51 yr old retired police officer and am getting the 72t distribution. If I take the 100000 lump sum cares distribution will it violate the code?
Unfortunately I don’t see anything that would be an exception to the normal SOSEPP distribution rules (assuming you’re referring to a Series of Substantially Equal Periodic Payments), so I think this distribution would bust your plan. You would be subject to penalties back to the beginning of your SOSEPP if you did this.
But I may have misunderstood your situation – can you elaborate more? Is the distribution from your employer’s plan? Are you using the Age 50 retirement exception for your distributions (rather than SOSEPP)?
We receive a lump sum IRA from the public safety retirement system, that take control of when we leave on top of our pension called a deferred retirement option.This puts money into an IRA for the last five years of our career. Since I was only 46 when I retired I couldn’t touch the money for 13 years. So we did the SOSEPP 72t to offset insurance premiums. It pays out 1100/month before taxes for the last 4 years. Due to the tax rates being so low as of now, we were going to take advantage of the opportunity to not take the 10% hit.
Ok, I understand now.
As I indicated, I’ve seen nothing in the recent legislation which would allow a change to your SOSEPP distribution.
Thank you so much for your time!
Hello
I have a 401k and would like to take a loan out not a distribution or withdrawal a loan that I will have to pay back and I am currently awaiting my approval for unemployment insurance and haven’t received the stimulus check is why I need funds to hold my family and I over until one or the other happens. How does taking a loan out versus taking a distribution out effect my unemployment insurance.
I’m sorry but I have no way to know this. It’s entirely up to your 401(k) plan administrator.
Hi there! In 2018, I was 45, I left my job for health reasons. I had about $10K in my 401K and pulled it to purchase a RV for my disabled husband and I to live in because we could no longer afford to live in the expensive place we were renting in San Diego, CA. We paid cash for our RV. Do I need to pay the 10% penalty on that money?
Yes, this was most likely covered on your 2018 income tax return.
Hi, I am considering withdrawing from a 403B to pay off my mortgage early. I now I have to pay taxes on the withdrawal over 3 years. No penalty if Covid Hardship (wife is layed off). What should I consider?
The primary thing you need to think about is what the tax cost is going to be for you for the coming three years. It’s likely to be less than it would be since it’s spread over 3 years (possibly keeping you from bumping up in brackets), but it’s still a cost that you’ve got to come up with from somewhere. If it was me I’d start putting aside the equivalent of your mortgage payments into some sort of untouchable savings so that you have enough to pay the taxes when they come due.
I left my very large fast food employer almost 20 years ago and did not roll my 401k over. Over the years is has grown substantially and instead of reinvesting my dividends, I’ve been taking quarterly payouts over the last 4 years or so. I fully understand the tax consequences of that and since we’ve had children in college, it always balances out tax-wise and we don’t end up owing any money. I’m 54 1/2 and I’m considering withdrawing money to pay off some debt. I understand that If I take out money, I may be taxed at my ordinary tax rate and may be subject to a 10% penalty on the early withdrawal, and state and local penalties may also apply. The choices it gives me for withdrawing are Partial Withdrawal, Profit Sharing and ESOP Withdrawal and Total Distribution. I understand Total Distribution, but can you explain the first 2 withdrawal options? Whatever withdrawal choice I make, the federal withholding will come out immediately, but I’m wondering if by doing a partial withdrawal from the Profit Sharing and ESOP portion if I’ll be able to take advantage of Net Unrealized Appreciation or is that only on total distribution of ESOP?
You need to talk this over with your plan administrator to see if you can use NUA in your withdrawal strategy. My instinct says that if you have not taken any withdrawals from the ESOP and Profit Sharing portion, you may be able to use NUA on that withdrawal – but your plan administrator will have to confirm this for you.
I became disable at 53 can I make withdrawls without paying a pentalty.? Can I also use it to pay for medicare insurance premiums?
Total and complete disability (by IRS definition) is #6 in the list. If you fit that definition, you can use the money for any purpose without penalty.
I’m leaving my job after 3 years, I have a small 401k, about $7k. I’m 52 and was wondering if I could roll the money into a college account for my grand children to avoid paying taxes?
Unfortunately you cannot do this tax-free. You’d have to include the $7k withdrawal as income in the year that you take it out of the 401(k) plan. Plus, at your age this would be a non-qualified withdrawal, so there would be an additional 10% penalty ($700 more) on top of the tax. But then you could do whatever you want with the money.
I received a promotion at work, and managers do not receive 401k contributions like hourly employees do. Now my balance is frozen in place except for the monthly maintenance fees that are slowly taking my balance to zero. I’m losing money every single month. How can I withdraw this money without leaving the company?
You’ll need to contact the administrator to see what you can do. I’m surprised your fund is not invested in some way, so that capital appreciation would cause an increase that might make up for the fees.
I am 63, married, retired collecting a pension. I plan on converting my 401k to Roth 401k each year till FRA in 32 months. My plan is to stay in the 12% bracket. My questions is will my conversion, appx 64k this year, set off quarterly tax payments?
Thank you for your time.
I’m not sure I understand your question. If you have more than $1,000 in tax owed when you file your return, you may face a penalty for underwithholding. So if you’re not withholding enough tax from other sources or sending estimated tax payments in such that you’ll have less than $1,000 in tax owed with your return, you should make an estimated (quarterly?) payment of income tax in order to avoid the penalty. To know if you have this penalty you’ll need to project your taxable income for the year – a CPA or tax preparer should be able to help you determine this.
Thanks for the reply. The thing is with a Roth conversion my company doesn’t withhold taxes for me. They do with a normal withdrawal. So my question was would I be penalized when I paid taxes out of pocket next year. You have answered that…yes I would. I’ll have to do a smaller conversion and a withdrawal that will cover the taxes while staying under 102,950.
Thank you!
Hi, I am 59.5 and have a traditional 401K with 475K. I plan on taking out my money from the 401k and using 120K of for a down payment for a home. I will then roll over the rest to a liquid IRA. Do you know if I get a withdrawal penalty every time I take money out of the Liquid IRA or just the normal income tax? Thank you.
If you are 59 1/2 years old, there is no IRS withdrawal penalty, only the ordinary income tax. Your IRA custodian may have fees associated with your account, but that is dependent upon the custodian.
I will be 55 in Oct and was just downsized at end of April. I have $270k in 401k. Can I withdraw all or a portion of the money over the next 5 years? The plan provides for partial distribution, lump sum distribution, calculated and fixed installments.
Legally you can, and as long as the plan will allow you to make those withdrawals (as you have indicated). Talk to your plan administrator for more details and confirmation that this is allowed.
I wonder if the military reservist clause would apply to my family. My husband was called to active duty, which has affected our income, he is national guard reserve. Can I withdraw from my 401k under this clause being an active duty spouse? Or because it is my 401k and not his, would I still be hit with the 10% penalty?
I believe the clause you’re referring to is only for the reservist’s account, and your own account (in your case) would still be subject to the penalty. Does seem like there’s a very good case for including the spouse’s account, I agree.
I have left my previous employer where my 401k is with Merrill Lynch. My current employer has a program with John Hancock. I am 51yoa, does the “leave employment” mean employer or does it mean not working at all? Also, would I be able to do a partial rollover and only pay penalty/taxes on the part I don’t reinvest? Any other options to access part of my balance besides the loan programs?
“Leave employment” means only that employer where you have the 401k plan. You must leave the employer AFTER you are age 55 to avoid penalty, unless you’re in one of the jobs where age 50 is the requirement (see above). And yes, you can rollover part of your account and withhold some in cash (which will be taxable). Of the portion that you take in cash, there will likely be an automatic 20% withheld for taxes.
Regarding other methods to access part of your balance, any of the 16 methods above are available. Otherwise, I don’t have any other methods to offer.
I’m 61 and have been given a severance package to go away. Can I withdraw my 401 without penalties
Yes, you should have unimpeded access to your 401(k) after age 59 1/2 when you have left the company. You will have to pay tax on the withdrawals.
I am 67 retired and no longer work for my employer. I havs 491 k with the co I retired from. Can I withdraw without penalty
Yes, you should be able to.
I am in a unique situation. I had to do a early withdrawal from my traditional IRA for personal reasons. But i never used that money. I had sent a check and USPS lost the check. I am already past the 60 day grace period to return the money in my 401K.Is there anything that can be done to avoid paying the penalty
You may be in luck. Check out the article 60 Day Rollover Waivers. Specifically look at the section on Self Certification. You may be able to use the model letter to self-certify the fact that the check was lost in the mail, and thereby eliminate the penalty (you’ll need to complete the rollover ASAP).
I want to use part of my 401K for a down payment but the but my retirement company “Empower Retirement send me the form “Hardship” and for my understanding Hardship is for emergency and they charge more but they said that I need to use this form. for every $10,000 they charge me $1,500.
They have another form called “Withdrawal” but they told me that I can’t use that form. Thank you.
The administrator of the plan is the final authority on how/if you can access your 401k funds. Unfortunately it sounds like they only allow a hardship withdrawal from your plan. You might ask about a loan of the funds, instead of a withdrawal…?
I’m just thinking ahead…I’m 45 years old right now, I’m expecting to have about 2million dollars between my 401k and my Roth IRA by the time I turn 52-55 years old.
am i understanding it correctly that I could apply the 72t rule (SOSEPP) to retire early by taking equal payments for 5 years or when I turn 59.5 years old by either applying it to one of the accounts or roll the 401k into the Roth IRA (paying taxes on the rollover amount of course) and applying it to the entire amount once in my Roth.
if I hit the 2mil mark at 52, 5 years means i’m only 57…not old enough for normal distributions (59.5) but beyond the 5 year requirement, how much can I take out of my account at that point without penalty?
thanks, Mike
The SOSEPP must be in place for the longer of 5 years or until you reach age 59 1/2. So in your example, you’d need to keep taking the SOSEPP payments for 2 1/2 more years until you reach age 59 1/2, because that is the longer of the two. If you started the SOSEPP at age 56, you would have to keep it in place until you reached age 61 (the longer of 5 years or until you reach age 59 1/2).
I’m 62 and still working. Since I’m of age to withdraw from my 401 without penalty, I’m considering transferring my bank savings account into my 401 which earns far more than bank rates. Will I be able to withdraw funds from my 401 periodically?
Unfortunately you are not allowed to make contributions to your 401k in that manner. The money you put into the 401k must either be from your earnings (by salary deferral) or from a rollover from an IRA or another retirement plan.
You could always open up a standard non-tax-deferred brokerage account to transfer your savings into, which would allow you to invest in other kinds of assets (besides a regular savings account) which may produce a better return for you.
Hi there.. I want to take put my 401k from Walmart. I am 37 years old. Its only 2,000. Will I get penalized for it?
Unless you meet one of the exceptions noted in the article, yes, you will be penalized on the withdrawal. You will also pay income tax on the withdrawal, regardless of the penalty.
My husband is 62. He plans on retiring at 66. We own our property. Bought owner finance. Paid off years ago. We have most of what is needed to do a sustainable life-style. We don’t want a house. We have a 35′ RV. We need 10 or more acres with a well and electric, a shop would be nice but not necessary. Our intent is to take $8000 from his 401k and use this for a down payment. We keep missing out on good property. We are packing up what we need into storage and moving from this property and we already have people looking to buy. (Lake) Use the money from this sale to pay off land. Bank says we are 1st time home buyers. Never had a mortgage with a financial institution. We don’t want to close 401k just take $8000 for land. What are our qualifications and the requirements to get this money ASAP? He is still working for this company and is vested. Fidelity manages account. Excellent credit.
You’ll need to ask the 401k administrator what the requirements are for you to take a distribution from the account. Each plan can have its own rules.
my new employer enrolled me in a 401K with my permission or signature. I immediately filed a complaint, however, Lincoln Financial did not refund the money due me from the first paycheck until my refund was received for 6 months. # 13 ‘Auto-Enrollment’ I believe should apply, however, my previous employer placed a #1
It seems as if you have a reason to ask for a correction to the 1099R if it is coded only with a 1 – it should have the exception code 8 noted, and your W2 should be updated to reflect the additional taxable earnings. This is unless there are other circumstances that are unknown with regard to the refund.
I have two 401k accounts. One from my current employer and another that was a QDRO. I am going to be 57 this year and would like to retire. Is it possible to take distributions from one or both of these accounts without incurring the 10% penalty?
I just found your website. It’s a wealth of information. Thank you!
You’ll need to check with your current employer to see if you’re eligible to withdraw from the account while you’re still working there. If so, being under age 59 1/2 and still employed, you would still be subject to the 10% penalty on that account. The QDRO account may have the option for you to withdraw funds without penalty, but once again you’ll want to check with the account administrator to see what your options are.
I do not want to withdraw from my current employer’s account while I am still working and will only make the decision to retire if I can withdraw penalty free from one account or another; whichever is most beneficial. If I cannot use the QRDO option, I understand that I may be able to use 72T, but not sure that will be enough income. I have also read on your site something about being able to withdraw from 401k when retiring if I am older than 55. Just trying to clarify. Thanks so much
After you retire, you CAN avoid the 10% penalty by withdrawals from your current employers 401k plan.
But only if you retire or leave the company at or after age 55.
Hi, In my 401k i have 39,000 USD, if i am leaving out of country, how much i will get it in my hand if i want withdraw, is it a way i can avoid tax, is it a penalty if i am leaving the country also,
If you’re under age 55 when you leave the company you will owe ordinary income tax and a 10% penalty on the withdrawal. To calculate the ordinary income tax, just add the total amount of the withdrawal to your other income for the year and calculate the tax. Add 10% ($3,900) to the resulting tax to account for the early withdrawal penalty.
Hi Jb,
I was part of an ESOP that was dissolved. Everything in my ESOP account is cash. Let’s say my account balance is $120k. I have until the end of Jan to move this money.
I currently have a IRA account (let’s say the balance is $80K). I’m in the market to buy a home and I wanted to use some of my retirement funds for a down payment.
I read the rule of “60 Day Rollover”, which states I can withdraw money from my IRA account tax & penalty free for 60 days, as long as I put it back.
My question is, can i withdraw $75k from my IRA account (tax & penalty free) in Jan and in the middle of Jan I take my ESOP money and roll it over to my IRA, hence paying back the $75k.
I am under the age of 59.
Appreciate any insight you may have.
Thank you
RM
Is the ESOP money pre-taxed? Or is it taxed when you withdraw it from the account?
I suppose either way it doesn’t really matter – you’d pay tax (or not) on the ESOP money when you withdraw either way… So the question you’re asking is: Can I put money from another source back into the IRA to satisfy a 60-day rollover? The answer is yes, it doesn’t matter where the money comes from to complete the 60-day rollover. You just have to make sure it’s all done within 60 days.
Thank you for the reply.
My ESOP is pre-taxed. I won’t be taxed unless I take a distribution from the ESOP. My plan was to take $75k from my ESOP account and roll it into my IRA within 60 days.
Here is some information on ESOP:
Employees pay no tax on stock allocated to their ESOP accounts until they receive distributions, at which time they are taxed on the distributions. If the money is rolled over into an IRA or successor plan, the employee pays no tax until the money is withdrawn, at which point it is taxed as ordinary income.
My goal is to use $75k from my IRA and put it towards a down payment and within 60 days take my ESOP money and roll it into my IRA, therefore paying back the $75k.
Thank you!
Well, there’s going to be a problem – some of this is going to be taxed as distributed. You’re starting out with $120k in your ESOP and $80k in your IRA, for a total of $200k deferred. You’re taking $75k out of the IRA, and then taking $75k from the ESOP to put into the IRA. In the end you’ll have $80k in your IRA and $45k in your ESOP, for a total of $125k deferred. $75k was distributed, and you’ll be taxed on this, as well as penalized if you’re under age 59 1/2. There may be some relief from penalty on $10k of the distribution if this qualifies as a first home purchase.
I’m 66 and need to cash out a 401K to pay for my granddaughter’s college tuition. Which tax year would be better? December 2017 or wait until the new tax plan hits in 2018?
In order to fully understand this, you’ll need to run the numbers. Do an estimate of your 2017 income with the additional included, and then do a projection using one of the estimators that have become available.
Hi, I am 24 years old and I recently left my old company with which I had a 401k. If I decided to take out all 18K out of my 401k, do you know the total I’d be able to keep, and the total I’d owe? Thanks!
The amount that you take out of the account will be added to your other income for the year and taxed as ordinary income. Since I don’t know how much your other income is, there is no way I can know how much the tax and penalty will be on your potential withdrawal.
I am 61 1/2 years old. Can I take out the minimum $1,000.00 from my 401-k for anything I want to use it for and is there a penalty other than adding to my yearly income and paying taxes on it?
IF your 401k administrator will allow a withdrawal, the tax on the withdrawal (adding to your ordinary income) would be the only penalty at your age.
Question… Can an employer you have a lawsuit against stop you from withdrawing your 401 K if you’ve stopped contributing and they’re still contributing 3%?
If there is a restriction against withdrawals while you’re employed (as with most plans) you will not be eligible to withdraw your money. This doesn’t have anything to do with the lawsuit.
However, if the plan documents allow an in-service distribution (meaning, you’re allowed to withdraw money while still employed) and they’re disallowing the withdrawal, it could be due to the lawsuit – which may or may not be legal. I’d ask your attorney to look into it if that’s the case.
Ok thanks a bunch!! Because my fiancé hasn’t worked for them since 2012.
Ok thanks!! My fiancé hasn’t worked for them since 2012. I’ll share this information.
I just got laid off and I am 53 yrs. Is there a way to pull from 401k to pay down my mortgage if anything pay it off?
Any withdrawal will be taxed at your ordinary income tax rates. Plus any withdrawal before age 59 1/2 that doesn’t meet one of the exceptions will be hit with a 10% penalty.
Thank you.
53 years old, left job after 21 years. Does a health care working get taxed high for taking 401 k?
Any withdrawal will be taxed at your ordinary income tax rates. Plus any withdrawal before age 59 1/2 that doesn’t meet one of the exceptions will be hit with a 10% penalty.
Hi, I am 34 and I lost my job in the beginning of Aug of this year. I want to start a small service company and I have heard about the rollover. How could I start this. Where would I have to go or where could I call for more info. I am from NYC,NY
I suppose you need to talk to your plan administrator to initiate a rollover.
Where would you suggest for me to look for a plan administrator? I am sorry but I am really clue-less about this.
The 401k administrator is most likely whoever you receive monthly or quarterly statements from. If you don’t have that information, talk to your Human Resources department, they should have the contact information for you.
I have the question – if i invest on 401K for an 14 months and when i move back to my native other than US… If i stay out of US for more than a year and plan to withdraw my 401K, will it have any penalty apart from 10% default?
The only tax penalty you would have is the 10% early withdrawal penalty. However, your employer may have a vesting schedule which may reduce the amount of employer matching funds that you will receive upon leaving the company. Often this vesting schedule is five years for full vesting – you’ll want to check with your employer on the timeline.
I was laid off from a job at the end of September. I had a very difficult time finding a job, so decided to get licensed in real estate. I am just getting started and anticipate it might take 4-6 months before I start making an income. I am still trying to decide what to do about my 401K from my employer. I was going to roll it ovee but now am thinking , I need to take the payout because I need it to live. Is there anything that might lessen the tax penalty because of hardship and being a single mother of 2?
If your circumstance fits any of the exceptions above, you could avoid the 10% penalty on your withdrawal. There are some other exceptions that you could possibly qualify for if the money was first rolled over into an IRA, so you might explore those options as well. Unfortunately, hardship alone is not an exception to the 10% penalty. Either way, you will be liable for the tax on the distribution, even if you can avoid some of the penalty.
Hi JB…quick question with a possible complicated answer. We moved over from the UK about a year ago and our visa is good for another 5 years. By default i enrolled to my employers 401K and the return has been good at almost 10%. However, from my family perspective we are not sure how long we will be staying in the US. Could be 5 years could be 10 years or more. We have bought a house so the intention is to stay for a while.
If we were to leave to go back to the UK, we will need the capital to invest in property and start all over again – sad but true! Is 401K the right answer for me considering the penalties? I contribute generously to my 401K so i reckon there will be the best part of $70K in the next 5 years or so. Will it be better to opt out and invest on Index Funds for example? Maybe not such a huge return but money is accessible? I would hate to loose out on employer contributions though- currently capped at 3% for the first 6% employee contribution.
Thanks
I think it makes sense to take part enough to receive the company contributions, with a caveat:
You didn’t mention the vesting schedule – if it’s a five-year plan then you might want to reconsider participating in the 401k plan at all, because your timeline may be much less than the vesting schedule. If it’s a 3 year vesting schedule, it might be worthwhile to participate enough to get the matching funds.
If you’re vested in these funds and you have been receiving (effectively) a 50% return on your own contributions via the company contributions, then the 10% penalty won’t have as devastating of an effect if you withdraw the funds prematurely.
Other than that minimal participation, given your proposed timeline, I would not suggest participating further with more than the token 6% contribution. If your timeline changes you might adjust the participation level.
I’m 55, can I make a loan to pay my cc debt
You’ll need to ask your 401k administrator about that.
One loan to pay for another loan? Think about it. How much will the 401k loan COST to get? (origination fees) etc? then, after that up-front cost, there may be other fees. take your current CC debt and use the calculators to show ho much interest over time you will pay. oh, and if you’re paying the minimums, you aren’t ready for a 401k loan. The repayment term will be less, meaning payments will be much more. Now, figure out how much you are goiing to pay on the 401k loan and put that to your CC. re-run the interest calculator on the new payment amount for the CC and compare it to the 401k loan, fees and interest. Is it REALLY worth it? and to have the IRS take you to the clerners for not being able to repay?
I recently bought a house and I used my credit cards to do pay for repairs and other things that go with a fixer upper. I used my credit cards for This. I have already used what loan amount I can for my 401k, which I have 12K left in. They say I can’t access it because these don’t meet withdrawal criteria. The CC debt is about this amount and is killing me financially. Is there anything I can do to access the money ?
Not while you’re still in the job, apparently. The administrator of the plan has final say on distributions.
take out the 401k money with 10% penalty you would lose $1200. But then pay off credit card bill and kill those interest payments.
Maybe a home equity loan (if you have any equity) or a home improvement loan (for the work you did) will be at a lower rate or a new 0% credit card with a transfer option. Definitely time to stop spending.
Hi im 40 yrs old worked 20yrs for an employer have a 401k with around 150k in it, my wife and i bought a farm in pennsylvania 6yrs ago and financially cant complain . I am no longer employed and make a living farming. i would like to withdraw my 401k and put it towards mortgage or just in savings account we r currently in 15percent tax bracket but barely what would my penalty be for doing so r do u have any suggestions i really cant forsee needing the money at retirement
At your age, any withdrawal from the 401k that is not rolled over into another deferred account (IRA or another 401k) will be taxed at ordinary income tax rates and a 10% penalty applied, unless an exception applies (as noted in the article). Taking a cash withdrawal could prove to be very costly – your best bet, if you want the money out of the 401k plan, is to roll it over into an IRA. This won’t make the money available to pay the mortgage, but you won’t be killed on taxes with this transfer.
Great site JB. I have a question. I received a portion of my wife’s 401-K with a QDRO. I want to get the money out and put it in my existing IRA. I am keeping some of the money to offset the cost of a divorce. What will that scenario cost me?
The amount that is not rolled over will be subject to ordinary income tax – but it should not be subject to the 10% penalty, as the QDRO allows you to withdraw from the account without penalty. Talk to the 401k administrator to make sure this is the case for your situation.
Hi I recently left my job because of hour and days were being cut a the only way I could get money was to leave and cash out my 401k which is taking forever. Is there anyway they can get me my money any sooner before my eviction of my home?
Unfortunately that is between you and the 401k administrator. You should talk to them to see if they can expedite the process for you.
I am 50 years old and owe $100k for mortgage. I now have $100k in my 401K. Can I withdraw all the money from 401K to pay off my mortgage without the penalty?
No.
A withdrawal from the 401k that doesn’t meet any of the exceptions listed in the article will be subject to the 10% penalty for early distributions.
It is crucial to pay off your mortgage debt, and since you are planning to pay off that debt, is usually possible with any creditors to make a “deal” paying off your loan amount. You can ask your mortgagor if they are willing to take 60-80% of the loan amount, meaning, you can pay off 60-80k instead of the 100k, and this will greatly offset the amount you will be taxed on your 401k. Most likely, this will put some money back into your pocket, or worst case scenario, you break-even (which is what you were intending to do in the first place).
“Diligence is consistency in hard work while being solely dedicated to accomplishment!”
I suppose you can ask, but I find it hard to believe that a mortgagor would be interested in a 60% payback. But I’m not in the real estate game, so maybe I just haven’t come across that situation before.
Perhaps there are more extenuating circumstances that you didn’t reveal that provide the environment for such a bargain deal?
I guess one situation could arise from a financial hardship, and if they could clarify that their circumstances meet that criteria, the bargain could be an option. I know that it works with creditors such as debt collectors and such, but I thought that mortgages would apply as well, but I could be wrong.
Mortgage is a SECURED loan. They would foreclose and destroy his fico score once the mortgage went into arrears.
My wife has been laid off from her job and has a small 401K there as well as another one from a previous employer. It’s been hard to find another job and she is wondering if she would be allowed to get her money due to hardship. She would prefer to take her money out than be forced to have to sell out home. Any suggestions?
This is a matter that she will need to address with her 401k administrator(s).
Hi,
My wife and I are going all in on a change of lifestyle. We want to move to Central America and buy a B & B. We have two 401k’s . Is it possible to cash out completely and re-invest in a our business without taking the tax hit?
Thanks
Possible? Yes. Easy? No.
You’ll need to rollover the 401k funds into self-directed IRAs with a custodian who works with small businesses. You can probably find providers by Googling them. Then there are many rules that you must abide by in order to make sure you’re not using the funds in an unauthorized manner, and this will be the tough part… plus, being domiciled out of the country will complicate matters even further.
I suggest that you locate an attorney to help you work through the concepts and pitfalls before you pull the trigger on this.
Best wishes to you!
One person S-corp and I am the only person covered on my 401k plan. I want more control over my money and would like to rollover my 401k to an IRA. I’m not technically leaving my “employer” (myself) and the business will remain up and running. Would prefer to just cash out and take the hit on penalties/taxes. Can my corporation choose to stop offering the 401k?
Yes, you can stop the 401k and allow yourself to rollover the funds out of the plan, assuming the custodian is okay with that.
Similar to the abovementioned case Jen has stated, however, I am considering to convert my sole-proprietorship into the establishment of an “S-corp” in Nevada where I would be the only employee.
However, I don’t know which retirement plan would be the best fit for an imminent rollover plan from my previous New York school employer’s 401k + 457b:
Traditional IRA,
Roth IRA,
SEP IRA,
Roth 401k, or
Solo 401(k)?
I like the optional/non-mandatory reporting to the IRS, but I don’t like the requirement to make a contribution every year, especially, if I’m not making much money (while teaching) during infancy…
For a rollover of the previous plan, a traditional IRA will give you the most flexibility.
Then later when you’re making money in your S Corp you can establish a Solo K or a SEP (or something else), whichever fits your needs the best.
Back when I was growing up, I remember that there was a way to take a distribution of your 401k, but as long as you re-invested it in another plan within a certain amount of time, there were no taxes or penalties imposed.
I can’t seem to find any details on this. Is this law still in effect? And, if so, what is the time limit? Thank you.
Yes, you can take distribution from an IRA or a 401k plan and re-deposit it into another IRA or 401k plan within 60 days with no penalty. You can only do this once a year with IRAs.
Great! Thanks so much for your response!
Great site! So much info!
Can I take a distribution from my Solo 401k Plan while I’m still employed (by myself) and roll it to an IRA without taxes or penalty? Are there distinctions between pre-tax, after-tax, and Roth contributions to the Solo K?
Been doing some poking around and found some helpful info at https://www.401kcheckbook.com/ , but does not seem comprehensive enough.
Also, been wondering if I could take withdrawals without penalty from after-tax and Roth contributions to a Solo 401k?
Thanks!
Thank you for your kind words.
With regard to taking distributions while still employed, I suspect you could do this but the IRS would begin to raise questions about it. Essentially this sort of action is treating the employer plan as a sham and simply a conduit for increasing the amount of contribution to your IRA above the set limits. I would not recommend doing this.
Thanks for the response and for providing a great resource
Hello – we are in the process of starting our own business and are looking to possibly withdraw from our 401K. We are below the age of 59 1/2 so I understand there are penalties. The 401K however, was opened by a company my husband no longer works for and hasn’t for the last 14 years. There was only a small amount in the fund when he left the job, and all the money invested since he left has been our money, no employer contributions. I thought I had read somewhere that if you take an early withdraw, you are not double taxed on the money you solely invested. Is this correct, or was I not reading it correctly?
?? I don’t know what you mean by “double taxed”. If you take a withdrawal from a 401k that doesn’t meet one of the exceptions and you are under age 59 1/2, there will be tax and a 10% penalty on the distribution.
I desperately need to get some money out of my 401K as I am about to lose my home. My 401K says I have not hardship loans available and cannot use any of my money. Is this true? I can’t use my own money??? Please help
It’s possible that your plan is set up that way. Talk to your 401k administrator to see if there is any provision at all for you to access the money in your situation.
Yes you are allowed must show that house has been given a date for foreclosure
JB, I need your assistance… I became ill back in 2012… Was awarded Long Term Disability in 2013, was re-evaluated in 2015 for the “any occupation” for continuing my disability and was approved… also in 2014 I was retroactively awarded SSDI… I am still receiving LTD and SSDI… I am not working any hours. I live in a very expensive area of the country and need to take a little money out of my IRA for some unforeseen expenses. I have read IRS’s definition of “permanent and total disabled”… would I qualify for a penalty free IRA distribution? I am only 47 years old, not married, my family is not helpful… it is me, myself and I… any help you can provide would be greatly appreciated. HKS
If you meet the definition of permanent and total disability you should be eligible to withdraw funds from your IRA without penalty. You will have to pay tax on the distribution, however.
I find the definition very vague… does IRS’s definition mean really gainful employable (I can not hold a job because of good and bad day uncertainty, medication side effects, decreased memory, etc…). I can do my daily tasks, go to my Dr appointments… can not remember to pay bills without reminders, etc…
Please help because it is not clear cut their definition, in my mind I think I qualify…
I won’t be able to legally interpret the rule for you either. I suggest contacting your doctor about it, most likely they have dealt with this in the past. If that doesn’t help, maybe an attorney? Sorry I can’t help any more than this.
Can I take out a loan from my 401k to purchase a vehicle or vehicle repairs.
You’re legally allowed to – you need to contact your 401k administrator to see if it’s allowed under your plan.
I retired from my former employer almost 2 years ago at age 55 and am now considering a 401K lump sum distribution taking out the company stock under NUA (cost basis as regular income, etc) and rolling the other investments into an IRA. I believe I avoid the 10% early penalty on the separated at/after age 55 exception. Does having gotten annual dividend payments (ESOP) from the 401K present any concerns on the penalty consideration?
No, I don’t believe this is a cause for concern. You might want to consult your 401k provider’s tax department for another professional’s take on it, but my understanding is that the provision has not limit on the timeline for withdrawals.
Hi – I took out a 401k loan in 2015. In 2016 I was laid off and the loan went to default. Do I have to pay the 10% penalty? Or does the 55 years old 72(t) exemption apply? I am 58 years old Thank you.
I found the answer by looking at the 1099-R and reading the 1099-R publication on irs.gov. The answer is No penalty. Thank you.
were do you go to withdrawl from your 401k? Ive been trying to figure that out and I have got no where can anyone help me???
You need to contact your 401k administrator. If you don’t have the contact information your HR department should have the information you need.
I’m 41 years old. I used to live and work in DC but I moved overseas for about 4 years and have never been back to the states. Is there anyway I can withdraw the money from my 401k account? and if federal income tax and state tax will apply, how much will that be?
If you withdraw your money from the 401k plan you will have to pay federal tax and, depending on your state, state tax. In addition, there will be a 10% penalty unless you meet one of the exceptions listed in the article.
The tax would be based upon the total amount withdrawn – it is added to your other income and taxed as ordinary income.
My mom is 55 and has been unemployed for 2 years and she has $16,000 in her 401K and wants to pull out all the money, would she be able to cash out and will she get a penalty?
She should be able to withdraw her funds from the account, but unless she meets one of the exceptions listed in the article, there will be a penalty on the withdrawal.
Senario– Husband is 57 and still employed. His 401K has a significant amount of money in it and we would like to take out enough to pay off our home. Is this possible? He would not stop working or contributing to his 401K. Is a lump sum withdrawal allowed without penalty to do so?
Or at least at 59 1/2?
Prior to age 59 1/2 while still employed it’s highly unlikely that the plan would allow a distribution at all unless there is a proven hardship. And absent that exception, any distribution under those circumstances is likely to be subject to penalty in addition to taxes.
Some companies (but definitely not all) allow employees to take in-service distributions after age 59 1/2. That is probably the best option for you to pursue if the 401k is your only source for paying of the mortgage. However, since that’s 2 or more years away (and not a definitely available option, depends on the company), you should look at other options if you want to pay down the mortgage: get a second job, sell something, reduce other expenses, etc..
Thanks for the followup—I will check with his plan administrator to see if an in service withdrawal is available after 59 1/2. I would just like to be done with the mortgage.
I left the post office in 2010 using their FERS disability annuity. I had to withdraw half of my 401K due to bills. Now at the age of 58 I would love to get the other half of the 401K to pay off bills. I am unemployed, left my last part time job due to my arm breaking last July. Can I roll over half of the amount to a Roth and keep the other half to pay off my bills? Will I still have a 10% penalty? Degenerate disc is why I’m getting an annuity each month, not sure if that qualifies for being disabled in the IRS eyes. Would like $20,000 out of the 95,000 in the 401k- should I create CDs at the bank instead?
Not sure I qualify for the 55 rule, since I retired 6 years ago. I will be 59 in 3 months. Wasn’t sure if putting the money in CDs will be tax free?
The age 55 rule applies if you retire in or after the year that you reach age 55. Putting money in CDs is not tax free.
When you reach age 59 1/2 (in 9 months) you can access your funds penalty-free. You will still owe tax on the withdrawals.
what about the age 50 rule? does that apply to Postal workers- sort of a government job. Do you still pay a penalty then?
As far as I know, the age 50 rule only applies to public safety positions, of which I don’t believe postal workers qualify.
Rolling over your 401k funds to a Roth (known as a conversion) is not a tax-free event nor is it penalty-free if you are under age 59 1/2 and no other exception applies.
My wife and I are purchasing a home and would like to withdraw my 401k to assist with the down payment or to pay off federal taxes owed. I only have 21k in it and left the company a year and a half ago that the 401k was set up with and have not been making contributions since. I’m guessing the 10 and 10 will apply to the witdraw. How long does it typically take to receive the funds once the request has been made?
That’s a question for the 401k administrator.
I am not working for a company that offers 401k, but have inn the past. How do i go about borrowing from it? Whom do i contact?
You need to contact the 401k plan administrator. Should have contact information on your statements.
Hi if I was wanting to take a withdraw from my 401k employer plan because of excessive debt legal fees loans ect. and decided to do a hardship withdraw to purchase a primary resident from a privet sale and no lender being used for purchase and the withdraw was approved but I decided not to go through with the purchase what would I or the seller have to be worried about?
You may have to pay a penalty on the withdrawal of funds if you do not meet one of the exceptions to penalty. Otherwise, you will certainly owe tax on the withdrawal. I don’t see any reason the seller is even involved with this transaction if you did not purchase the property.
I’m 55 and self-employed and I have a 401k that I rolled over 5 years ago and no longer contribute to. Can I withdraw money without penalty to pay off my mortgage?
If you leave employment (dissolve the company) then you should be eligible for a penalty-free withdrawal. Otherwise I don’t think you can distribute this money penalty-free without meeting one of the exceptions.
Sorry, I should have clarified, the 401K rollover was from a previous employer whom I left to start my own business.
If the money was rolled over into an IRA then you don’t have the age 55 option. As an IRA you’ll have to utilize one of the exceptions listed in the article 19 Ways to Withdraw IRA Funds Without Penalty to avoid penalties on the withdrawal. Either way, your age being 55 has no benefit for you on the penalty-avoidance front.
I am retiring in 3 weeks at the age of 57 and have a vested 401K with my company. Can I take out periodic distributions without the 10% penalty? Is there some 401Ks that do not follow this provision? I am hearing from the plan administrator that they do not allow withdraws under the §72(t)(2)(A)(v) provision.
Hmmm. I’ve never heard of that (not allowing the age 55 exception). Not even sure that it’s allowed for the administrator to disallow the provision, as it’s written in the tax law. I suppose there could be a rule in the plan that disallows any withdrawal by a former employee prior to age 59 1/2, or disallows periodic withdrawals (limits withdrawals to a complete distribution).
If the latter is the case, you could determine the amount that you need between now and age 59 1/2, take that in cash, and then rollover everything else. There would be no 10% penalty on the cash withdrawal since you’re over age 55.
I have a QDRO 401k from ex-husband. I am unsure of the amount but am getting a bit over $100.00 a month but would like to know how to get a grand total on what is actually mine and how to get a loan or lump sum to pay some bills.
Talk to the 401k administrator, they should be able to tell you that.
My wife has approximately 40k in her 401k through fidelity. I myself had around $100k in mine and then transferred it to my own 401k plan after I left my employer of 14 years last November. For a brief time early in 2016 I had some help by borrowing money from someone. Then I took a 40k loan against my 401k. That money is running out. I have no income and neither does my wife. We have a 5 year old and a baby on the way (due in Feb 17). I’m attempting to join my dads business but I can’t start making money until I’m fully licensed. My wife and I have agreed that if I can’t start making money by January next year, that we would withdraw her 401k entirely. I’m familiar with the fact that there is a 10% penalty and that we would have to pay federal withholding, however my question is… if neither my wife or I are making any money right now wouldn’t our tax bracket be 10%? Also, being that we have a hardship right now and need to pay the mortgage and bills, is there anything we can do to pay only the penalty and forego the federal taxes?
Unless you fit into one of the categories for exemption from the penalty, early withdrawal from the 401k will result in the 10% penalty. Taxes will be due no matter what, at whatever your applicable tax rate is. In your case with little other income the tax rate will be lower, of course.
I am 48 and have around 155k in my 403b was looking to withdraw as much as possible to be able to open a side business flipping homes. I am in the 28% tax bracket. I am still employed with company. And have no plans to leave. I understand they will access 10% early withdraw. which is roughly 15k. So would I receive a check for 140k and taxes would be due for 2017? Assuming a withdraw was done in Jan. 2017.
First of all, being still employed by the company and under age 59 1/2, it is doubtful that you will be able to make a withdrawal at all. This is a question for your 403b administrator.
IF you can do this withdrawal, the withholding from a 403b withdrawal is a mandatory 20%, so from a $155k account you would receive a net $124k. Then when you calculate your taxes at the end of the year, the actual tax and penalty will be determined – it’s not a guarantee that the 20% withheld will cover it all.
Your knowledge and responses have been very helpful and I plan on contacting my provider but was hoping you could help equip me going in to the conversation. I am borrowing from my 401K $50,000 for the purchase of a new construction home, but we just had a new baby and things got a bit more expensive at the hospital and as I look at the budget it looks like we will be about $8,000 short. I can’t get a loan from the bank because it will effect my mortgage. Is there any way I can borrow more even with the penalties? When I called them to do the initial loan they were saying the IRS would only allow me to borrow $50,000 for the new home. I have over $200,000 in my 401K. Is there anything else I can do?
$50,000 loan from your 401k is an IRS-imposed limit. No more is allowed.
So I am disabled, buying a house (both meet IRS requirements for 10% tax penalty exemption in my current situation) and I am unfortunately under 59 1/2. Do the IRA administrators hold the 10% tax penalty, pay it to the government and I need to collect it back when I do my taxes at the end of the year??? Trying to plan for things before executing contract.
If the money is in an IRA there will be no automatic withholding – you make this choice when you arrange for the withdrawal.
In your case, since you seem to meet one or more of the exceptions you shouldn’t need to worry about the 10% penalty. You will still owe ordinary income tax on the withdrawal, but no penalties.
I don’t work for the employer anymore but I got another job through a temp service agencies. I have bout $900-$1000 in it can I get money out of it I’m behind on all my bills
You should be able to withdraw the funds – with penalties and tax. Talk to the administrator of your plan for details.
I’m 66yrs old. I want to withdraw my 401k from CitiBank US. What no. should I call. Thanks
Contact information should be on your statement. Otherwise, check with the employer for contact information.
I am a foreign national and was by mistake put into 401k plan. I have almost $1000 In it. I would be leaving states in 6 months.
Can I withdraw it?
Check with your 401k administrator.
I want to withdrawl, not borrow 2500.00 from my 401k plan, to pay off an small debt. It has 5500.00 in it. I’m still working part-time, and I will be 53 in December. What can I expect in penalties with my plan and IRS. Is this a bad move on my part? Thanks, Debbie.
Your plan most likely won’t allow a withdrawal if you’re still employed and participating in the plan.
If you are not participating (sometimes plans don’t allow part-time employees to participate) and are allowed to make a withdrawal, then you can expect a 10% penalty plus ordinary income tax on your withdrawal.
I was terminated from my job they recently sent me a check it wasn’t for a huge amount right above 500 I’m in need of money can I cash it ?
If it’s made out to you, of course you can.
But I’d take a moment to find out for sure what this money is for. If it is from your retirement plan, cashing that $500 check will likely cost you more than $100 in taxes and penalties. If you decide not to cash it, you should deposit it in an IRA to preserve the tax-deferral on the money.
Hello I’m almost 59 have some health issues. Im still working for now but have macular degeneration. Dont know how much longer I’ll be able to work. My question is after im 59 1/2 can i cash in my 401k . soi can live on that money untill i can get disability?
If you are no longer working as of age 59 1/2 you should be able to withdraw funds from your 401k without penalty. If you’re still working it will depend on whether your plan allows “in-plan” distributions.
Can i take a lump sum payment, Or just monthly payments?
It depends on the plan – generally you can take a lump sum unless your specific 401k plan restricts distributions somehow. Check with the plan administrator.
I would like to take a loan against my 401(k) so that I can pay off some medical bills, get caught up on my mortgage and invest in my business. I still work for my employer. What type of penalties will I be facing?
Thanks a bunch.
Renee
There are no penalties for taking a loan against your 401k funds. You will be required to pay back the funds borrowed. Work with your plan administrator to understand the terms of the loan.
Hi, I’m really impressed with your level of responsiveness and the insightful advice on this page.
I’m 37, divorced and getting ready to move in with my boyfriend of 3 years. Currently, I own a home and he is renting. We’ve been working on my house to get it ready for listing, and have another two weeks of work. This past weekend, we found our dream home. We have been pre-approved without a contingency of selling my house, but we’ll need extra funds to put down 20% on the house. My question is, can I access funds from my 401k to do this? I’ve heard that it might be possible to do so for 60 days without penalty… but obviously there’s no guarantee my house will sell within that time. Appreciate any advice you can offer.
Your best option would be to see about taking a loan from your 401k for this purpose.
The 60-day option you mention is not likely given that you’re far under age 59 1/2 and you’re still employed by the company. Sometimes this is available (not often) but it’s almost always for folks who are at least age 59 1/2.
Hello, I’m currently looking to purchase a house for cash I want to use my Roth 401k to do that. Do you have any suggestion as to if that would be a option? I am currently still working with my employer and have taken 2 loans out against my 401k alreadyou. Would it still be possible to just draw out the funds without doing a loan?
Not while you are still working for the employer. If you don’t have any loans against the 401k currently you might be able to take another loan – that’s up to the plan administrator.
I appreciate your feedback
I got laid off at work I am 64 1/2 should I cash in my 401 to pay off my mortgage
Without knowing more about your situation, I can’t say for sure if that makes sense for you.
You would not have any penalties with a withdrawal from your 401k at your age, so at least that is working in your favor.
Hello, recently left my employer, relocated to another state and in the process of selling prior home. In the interim of selling we are also in the process of buying a new home and can’t take a loan from my prior employer (due to no longer being employed) and new employer won’t allow a loan from a 401k rollover. My plan was to take a loan from new employer for down on the new home if prior house doesn’t sell soon. Is there any way to avoid a tax penalty, I.e. Transfer funds somewhere and repay a potential loan? Retirement is years away
Unfortunately there is not another way to access the funds without taking a withdrawal. If you are able to get everything arranged within 60 days of the withdrawal, you could replace the money into an IRA and then you’d have no penalty. But 60 days is a very short period of time…
Jim – Do you know how the taxes work if there is a Roth 401k rollover (containing basis and gains) to a Roth IRA and then that money is withdrawn from the Roth IRA prior to age 59.5. Maybe the taxpayer can’t just withdraw what was originally the Roth 401k basis that’s now in the Roth IRA and may instead have to take out a blend of taxable gains and tax-free basis?
The rolled over basis would be tax free upon withdrawal prior to age 59 1/2, and anything above that amount would be taxed and penalized. The Roth 401k money takes on the “age” of the receiving Roth IRA – that is, if the Roth IRA must be in effect for 5 years before the amounts above the basis can be withdrawn penalty-free, even if the owner of the account is over age 59 1/2.
jblankenship
My home was flooded back in March which caused a lot of structure damages including roof and unleveling of my home. Is there some way to get a loan against my 401K or withdraw funds to fix my home?
Talk to your 401k administrator to see what options you have available within your plan.
I am 27 and I have around 45k on my 401K. Been with the company for almost 7 years. I am about to start my own business or staring my entrepreneurship. So I was thinking about using my 401K to Purchase assets.
Now my question is that I still be working for the company for maybe another year and I don’t have a lot of faith on 401k plan specially knowing that the federal R. May raise rates again this year on September 20th but I will like to know how, where or who do I need to contact to withdraw my 401K
Not sure how the fed raising interest rates would cause your 401k to be in jeopardy, but of course that wasn’t what you asked.
You need to talk to the 401k administrator to understand your options for accessing your 401k funds.
I have had my 401k for about 6 years and I have a loan with them. I am 55 years old. I went on FMLA in April or May of this year and have not been able to go back to work because of my medical condition. Short term disability has been giving me the runaround so I have not had a study income and have not been able to make my loan payments! I have applied for SS disability but have not gotten an answer as of yet. I now have need of some money for medical expenses that my insurance will not cover and my only option is to withdraw some from my 401k. Is this a possibility even though I have not been able to pay on my loan??
Talk to your 401k administrator. You may be able to take a withdrawal without penalty due to the medical expenses.
I am planning to leave my employment due to health issues and will be filing for disability. Do I have to wait until the disability is approved by SSDI before I can withdraw funds from my 401K? I will turn 50 next month, and have a minor son.
Talk to your 401k administrator to see what they require.
I was automatically enrolled in mine. What is the time frame for me to withdraw my funds if I do not wish to participate?
Check with your plan administrator. It definitely must be within the same calendar year, but there may be other restrictions that are plan specific.
Thank you for sharing your knowledge! Do I understand correctly that I am not able to withdrawal, with penalty even, unless I leave my employer?
Sometimes a plan will have provisions for pre-retirement or in-service withdrawals. These typically are only allowed after age 59 1/2. Otherwise, your only option while still employed is to take a loan from the plan – and that is dependent on the plan documents as well.
Hi! I was planning on withdrawing $10k from a 401k I am no longer contributing to. From my understanding there would a 10% penalty for withdrawing under 59 1/2, 20% withhold paid to the IRS…Then the remaining balancing cashed to me would be filed as added income at the end of the year correct?
Only the 20% withholding occurs when you make the withdrawal. You’ll calculate the 10% penalty when you file taxes for the year. So in your example, you withdraw $10,000 – $2,000 (20%) is withheld, so you receive a total of $8,000. When you file your taxes next year (for calendar year 2016) your income will be increased by $10,000 (the amount of the withdrawal). You’ll have credit for $2,000 of withheld tax. Then you’ll also have a 10% penalty ($1,000) added on top of your total tax for the year.
I worked for a big financial institution for over 18 years, now I am 60+ years old. I have a good amount (252K) of 401K with them. Can I start withdrawing every year a small amount from my 401K without any penalty, just a regular 10% tax holding. As I am thinking to just work part time, and get some other extra cash to take care of my regular expenses on a daily basis.
This is up to your 401k plan administrator – this is an allowable option, just not always available in every plan.
I was on a leave of absence from work (for my own self) , it was never approved by the short term disability company. Can I withdraw for financial hardship, other than mortgage payments/foreclosure? The debt racked up when I was on leave. A year later, I am still sinking.
I have a medically complex child w/ severe needs, Are their any special hardships I can take because of her needs, aside from owing for medical bills?
You will need to check with the 401k plan administrator to find out for sure if this is allowed in your plan.
Hello,
Sorry I googled but could not find answer. May I withdraw without penalty from MY ACCOUNT when my husband turns 55? I am his much younger wife :) He is listed as a beneficiary. Thanks!
No – the owner of the account must be 55 or older when he or she leaves employment in order to take advantage of the age-55 rule to avoid penalty.
Hello,
I am looking to payoff some excess debt so I can look to work on paying down student loans and work on buying a house. I have a 401k from my former employer just sitting there, nothing has gone into it in over 3 years. Would I be better off rolling it over to an IRA and then look to withdraw from that and avoid a penalty/ taxes, or would I somehow fall into one of the categories to avoid penalties in a direct withdrawal and take on the distribution of funds into my account to pay off the debt?
This is just more of an info seeking question, not committed to doing either at this point.
Thanks!
Unless you have another exception that applies, moving the money to an IRA doesn’t avoid penalties – and you can never avoid the tax on withdrawal regardless of which plan the money is in.
Paying off debt is not one of the exceptions to the penalty for early withdrawal – from either kind of plan.
My grandson was born with severe heart condition requiring several surgeries. My son’s health insurance does not cover all the expenses. Can he withdraw from 401K or without penalty?
This would fall under #10 in the article. Your son would need to contact his 401k administrator to find out if this is an available option in his plan.
It’s an allowed option, but not all 401k plans have the option available.
My husband and I are legally separated. I am to get half of his 401K. Can he give me the full amount without penalities? Thank you Christine
If the QDRO specifies the entire amount, then the entire amount can come to you. Otherwise it’s not a penalty-free transfer.
If my husband takes money from our 401k early and roll it into an IRA, how long before it can we withdrawn from the IRA? He is no longer with the company he had the 401k with.
HIS 401k, not our! :)
You need to ask the IRA custodian this question. I think legally there is no waiting period after the rollover to withdraw, so it’s up to the IRA custodian’s rules to determine.
I want to cash out my 401k its only about 5k so fidelity said at end of year it would be 10% penalty. Is it only 10% penalty or it can be more?
The penalty will be 10%, there will also be tax on the withdrawal. The amount of the withdrawal will be added to your other income and taxed on your tax return when you file next year. The company will also withhold 20% to pay the tax – that is mandatory.
hello, I am 47, I have worked for my company for 28 years, I have 50,000 in my 401k. I am leaving my job September 2, I can no longer do my job due to degenerative feet condition. I am going back to school this fall to prepare for a career change. Can I draw from my 401 to help retrain myself for my new job?
Education is not one of the options for penalty-free withdrawals from a 401k. You could transfer your 401k to an IRA and then education is an available penalty-free option from an IRA – just not a 401k.
I’m retiring I get a pension. I get lump sum 20k for vacation pay. They say the only way to avoid taxes is put in 401 or 457. I turned 55 in January. I retire 08/31/16. At age 55yo. I need some money to take care of some bills. Right now if I get the money straight from work the 20k gets knock down to 14k. What will it save me to put in 401 then take out? 55 rule or can I?
If you need the money from the lump sum for vacation pay, there is no benefit to you by contributing it to the 401k and then taking it right back out. Either way it is going to be taxed, so the net amount will be something less than $20k. The age 55 rule will only save you the 10% penalty – which would not apply if you don’t put the money in the 401k in the first place.
I’m retireing February,242017 want withdrawal my money in January Margaret Spangler work at amh bjc my address is 310scentlrel how get it when I retired in February24 2017 address is 310scentre Roxanne Illinois62084 depot it in my checking account I need information about how to do it or Will they send letters in january I turned65.February241952
Talk to your Human Resources department and they should be able to get you squared away.
Does anyone know HOW or where to contact 401k administration? We need to move forward on withdrawing monies.
You should have this information on a statement. If not, contact your Human Resources department.
Great article, thanks much! As a 31yr immigrant, if I decide to move move back to my home country by end of the decade, can I withdraw the whole amount in my 401(k) with an upfront 10% penalty? I have read about IRA and periodic payments but was wondering if there are smarter ways to do claim your 401(k) amount.
If you wish to withdraw the entire amount you will be subjected to the 10% early withdrawal penalty unless you meet one of the exceptions noted in the article.
I am trying to buy my first home. I have been putting in to 401k since I was 18 and I am 30 now. I was wondering if you know if there is a possibility to withdraw my 401k to pay for the homes down payment and remodeling needs? Maybe just a loan against it?
A withdrawal from a 401k for a home purchase is not one of the exceptions to the penalties. Your best bet may be to take a loan from the 401k, or save up the money outside of your retirement plan.
My parents made me a personal loan to pay off my student debt from their HELOC. Is there a way for me to use my 401k money (obviously I’m not 59.5) towards that HELOC? The HELOC’s interest rate is a lower interest rate than a 401k loan. Can I gift them this money towards the house?
Unless you meet one of the other exceptions, your only choice (to avoid penalties) would be to take a loan from the 401k. Doesn’t sound like that’s a good option, you might as well pay them back in installments and save the interest differential.
I am a founder and an executive in a C-Corp. Can I invest my 401k into my C-Corp or any company looking for an investment without a penalty?
I don’t know of any reason you couldn’t. You’ll want to work with your accountant to determine the best way to structure the investment – new shares, etc., in order to make sure it’s all above-board.
I got suspended until further notice at and I don’t no money money to pay my rent and bills but I’m enrolled in 401k how do I go about getting some money out for the time being?
Contact your 401k administrator to see if there is any way you can withdraw or take a loan from your plan.
My company is relocating me to Norway by terminating the current US contract. I have contributed for 401K for 3 years so far..As i wont be contributing any longer will it be wise to keep it until am 59 (which is 24 years from now) or take it out now. I am planning to buy a house in Norway and i was considering to use this money as a starting amount.
Is there any exceptions to penalty if one is permanently moving abroad?
Thanks!
No, there is no exception for moving abroad. Not sure if the home in Norway could be considered a first home – you should probably call the IRS to find out for sure.
Hi!
I’m 53, and have been on SSDI for 12 years, permanently disabled. My former employer offered an option to withdraw or transfer my 401k early, and I transferred it to an account with Fidelity in 2014. As cost of living increases (rent, food, utilities, medications, health costs, etc.) I find myself with less and less available money. My husband is 42 and works, but our rent alone is astronomical, yet average for where we live. The Fidelity account is our only savings. Our car is just about dead, our credit card balance is getting too high for comfort, and I feel I need to make a withdrawal so we can get out of debt (interest on CC is 25% and is the best we can get) and get a car that’s not going to leave us stranded. We just don’t have enough income plus SSDI to save up money for a car, or to make extra payments on the CC. Here are my questions:
1. Is there a way to avoid any of the penalties or taxes since I’m legally disabled?
2. My Fidelity account is split with part of it ($15K) in something called “Cash Core”, an FDIC Insured Deposit account with a very low interest rate, and the rest of it ($27K) in Stocks, Bonds, etc. Looking at my account, it appears that the only amount avail for WD is the $15k. Since the rest ($27K) is invested in stocks, bonds, etc., am I assuming I can’t touch it at all? That’s the part of my account that’s losing money based on all the drama in the stock market. I’d rather take it from $27K since it’s doing poorly, but am I correct in that I cannot? Thanks in advance.
Given your circumstances you may qualify for an exception to the early withdrawal rate for for disability.
Regarding the funds that can or cannot be withdrawn, you need to check with Fidelity to see what their rules are.
My opinion is that you should find a way to reduce your expenses, as this withdrawal is at best a stop-gap. Hard times call for hard decisions, and it might be time to consider a move to a new location that is lower in cost.
Of course, I know nothing about your circumstances beyond what you have told me – but that’s my take on your situation from what you’ve told me.
Thank you so much for your response. We’ve cut back everywhere we can, and we’ve been looking for another place to live. But in this area, you are either safe with high rent, or live in an extremely dangerous and violent area for a lower rent. No happy medium. I truly appreciate you taking the time to reply to my questions.
You’re most welcome, and I wish you well – best of luck to you.
Thank you for your article and the follow-up comments. This is al very helpful. Is there a tax penalty with number 15, the qualified domestic relations order? Does it matter how much the amount is? What is the loan amount on any 401K and how does that work?
No penalty, but there are taxes on the distribution for a QDRO.
Regarding loans, you’ll need to talk to the 401k administrator to learn how that works.
I am thinking of leaving my employer and going to trade school. I plan on using some of my 401k money to pay for the school. Is the portion of the 401k that I would use to pay for the school subject to the same tax and penalties as the rest of it. I am 53 with approx 40,000 in my 401k
Yes, your withdrawals from the 401k would be subject to tax and penalty. However, if you rollover your account into an IRA, there is an exception to the penalty for education expenses which you might take advantage of.
Thank you for the IRA tip. That was very helpful
I recently lost my job due to vehicle problems and not having transportation back and forth to work. I may end up having to take out money from my Merill Lynch account to pay certain bills. Should I expect a 10% penalty? If the penalty does occur how would I go about paying that 10%.
If you’re under age 59 1/2 you may face a penalty on the distribution. You would pay that penalty when you pay your taxes for the calendar year.
What if im temporary disabled and need money for mortgage extc.?
If you have high unreimbursed medical expenses to offset a withdrawal, that could apply as an exception for you. Otherwise, a temporary disability does not qualify as an exception.
I am 46 years old I been with the company for 23 years my position will be eliminated I was offered a severance package what are the penalty if I was to collect my 401k ?
If you withdraw your 401k and do not meet any of the exceptions, there is a 10% penalty on an early withdrawal. Plus you will pay income tax on the withdrawal as well.
Can I take money out of my 491 k to plate my car?
I didn’t see that in the list
HI, My Wife and I are getting ready to retire. She is going to do the 55 rule and in a year I will be 59 1/2 and will be able to collect my 401K without penilty. My question is, they say they have to hold out 20% now and send to the IRS and we will then claim the 55 Rule on our taxes to regain it. Is this how it normally works or can they the send you your whole amount and then you pay tax’s at tax time. We want $100,000, will we only get $80,000?
Yes, that’s the way it works – there is a mandatory 20% withholding on any cash withdrawals from a 401k.
My wife turns 55 this fall. Her company is closing sometime early next year. She would like to take a large sum from her 401k early in January….then either walk away from work or be one of the folks who turn out the lights.
Would this still qualify as a penalty free distribution? Obviously there are tax implications.
If she’s over age 55 when she takes the withdrawal/separates from the company, there should be no penalty on the withdrawal. Naturally there would be ordinary income tax owed on the withdrawal.
Thank you. I appreciate your quick response
i believe she would need to separate from service before taking the distribution, or the 10 percent penalty would be triggered. If she takes the distribution in January and terminates her employment in February or March, that could be a problem.
Yes, that’s correct Jane. I had implied that fact, but you stated it much more accurately.
I have 1700.00 but only need 1000.00 for my rent can I withdraw for hardship
Check with your plan administrator.
I have left my
Company, been rejected unemployment and was wondering if I am able to cash out of my 401k?
You should check with your 401k administrator.
My Mother is retired and is looking to purchase a home for retirement. Is there a chart of which states dont impose a “Penalty” tax for withdrawing from a 401K. Its clear the fed made it IMPOSSIBLE to avoid the 10% tax they impose, but maybe the state?
Thanks!
Home purchase is not one of the exceptions to the penalty for a 401k plan. In order to avoid the 10% penalty (but not regular taxation) for a withdrawal from a 401k she must meet one of the other exceptions listed above.
An alternative would be to rollover the money from the 401k to an IRA and then the first-time homebuyer exception could apply, assuming that your mother would qualify for that exception.
State taxation is another issue altogether, I don’t know what state your mother lives in, so I can’t comment on whether or not there are any penalties and/or exceptions to those penalties for 401k withdrawal.
Florida does not have a state income tax at all :)
I’m 27 and am looking to retire in 20 years through aggressive saving and investing. Should I be maxing out my Roth IRA and my wife’s 401K before I make any regular investments, or is their a benefit to having the money more liquid?
If you’re planning to retire at 47, you’ll need some non-deferred money to help you get by until you reach an age at which you can access your retirement funds. I like to look at this as three different types of savings – regular deferred (like 401k or traditional IRA), Roth, and traditional savings (or taxable brokerage). Each type is taxed differently – the deferred money is taxed as ordinary income; Roth, no tax; and traditional savings is only taxed at capital gains rates.
The liquidity of the traditional savings will be useful when you retire if you do so at 47. I’d max out the other types of savings first though, and then as your capacity to save increases you can start putting money into the third type of savings.
Four years ago I went through a bad divorce leaving me with about $20k in credit card debt and an empty home that I couldn’t afford to keep. The divorce decree gave me 60 days to refinance or sell the property. At my wits end, I sold the property for less than I owed because the mortgagee was already threatening foreclosure. This eliminated any chance of making a profit to pay debts so I tried to cash in on my 401k retirement to avoid bankruptcy. I was told that I could not cash in under any circumstance except termination of employment. This forced me to file chapter 7 and I have felt mislead by my company. Is it true that I could not have used the funds in my retirement?
Generally to withdraw funds from a 401k you must have left employment. Some plans have a provision to withdraw after age 59 1/2 while still employed, but not many have this option.
I have joined an organization recently in US and was paying for 401K as of now (since last 3 months). I am now moving back from US to my own country and need to get 401K withdrawn. How do I do that?
Contact the 401k administrator to see what your options are for withdrawing from the plan.
If u have a loan out on your 401k can u still cash out
If you have left the company, your outstanding loan is considered to have been cashed out and you’ll owe tax and possibly penalty on this money. Nonetheless, you can still go ahead and cash out even though you have a loan, if you have left the company.
What if you are 55+ at the time of leaving the company and their is an outstanding loan that is considered cashed out? Will the penalty apply then or just the taxes due (and the added income at the end of the year)?
Yes, it is considered cashed out at that time – but no penalty should apply since you’re over 55 and have left the company. Only taxes will be due on the unpaid balance.
I understand it is now possible to withdraw money from a 401K without taxes and penalty to invest in a business? Is that true?
Not that I’m aware of.
I suppose it’s possible to rollover the funds from a 401k account to another employer’s plan that can then be invested in the sponsoring employer’s stock.
How do you actually withdraw your money out
You’ll need to contact your 401k administrator. Typically you’ll fill out a form and submit for processing, indicating how you would like to receive the funds.
What if you rolled over your 401k from a previous employer into your current employer’s 401K and then later qualified for the 55 exception with the current employer. Is the whole account balance exempt from the penalty or just the contributions during the time with the current employer?
The whole account balance is available under the age 55 rule if you’ve rolled in money from another employer’s plan or IRA.
If you make a withdrawal and replace it within the calendar year, are you still liable for the penalties and taxes? I was going to use a small amount of a 401k loan for a lot on a future residence I plan to build. The administrator said they only do the loans on a purchase of existing house or new home full construction contract – not just a lot loan. I plan to buy the lot first and wait to build the house in 2017. The amount is a timing thing and I could do it out of my income cash flow, so it’s less than a 60 day withdrawal.
Alternately, could I withdraw from my 401k and in 60 days put the money back into a Roth IRA?
Thanks for help.
If it’s a loan, there are never penalties and taxes on the loan amount – but you must repay it according to the plan’s rules, which typically require no more than 5 years for repayment.
If it’s a withdrawal (and not a loan), you’d need to re-deposit the money within 60 days to avoid penalties and tax.
If you make a withdrawal and within 60 days rollover the money into a Roth IRA, you’ll owe taxes on the distribution but not penalties.
All of this is dependent on whether your plan’s administrator will allow the loan or distribution.
Thank you for the information Mr. Blankenship!
Hi I have a small 401k of 1700.00 I stopped having my employer withdraw money it’s been about 6 months I wanted to know if it’s possible to cash out?
If you’re still working at the employer it’s unlikely. But the plan administrator is who you will need to ask about this.
I should have elaborated a little more. Does it matter if I moved but still work for the same company but in a different state? But thank you for your advice sir. The reason for the cash out is to help with my uncle funeral.
You’ll still need to ask the plan administrator about it. Some plans allow inservice distributions, but many do not.
I am 61 and my current employer does not offer 401k I have about 117,000 in my previous employer 401 just sitting there, what is the best thing to do with this money?
I would speak with a qualified financial advisor to help you understand what is the best option for you and your 401k money. I have virtually no information about your situation so I cannot advise you without gathering considerably more information.
Hi I took out money from 401k for a down payment on home. It was not my first home but it was my husbands and we financed it under his name. Is this considered first time buyer exception?
Not sure how this would be handled. Your husband would be considered eligible for a withdrawal for a first-time home purchase if he had no interest in a primary home for two years previously – but he didn’t take the withdrawal. I imagine that since you were not a first-time homebuyer and you took the distribution, it will not qualify. But you may want to check into this further.
Hi, I have a small 401k amount of $1,500 from a previous employer I worked for. If I request a cash out, how much of that amount should I expect? Also, is it something I should worry about filing taxes next year? Thank you.
If you cash out the account the administrator is required to withhold 20%, so you’ll get a net amount of $1,200 from your original $1,500 account balance.
I have no idea if you should worry about filing taxes – personally I wouldn’t worry about it, just file the tax return and pay the tax. Life’s too short to worry so much about things like that.
My husband and I need help catching up with our mortgage. We have a loan out on his 401k, but need to know if we can take out a hardship on his 401?
You’ll need to ask the 401k administrator if this is possible.
I have a 401k I have16000 dollars in there I need about $ 6000 to pay off some bills. how should I go about cashing out the $6000?
Contact your 401k administrator for information about making a withdrawal. If you’re still working at the job connected to the 401k it’s not likely you’ll be able to do this – but you might be able to take a loan against the 401k.
Hi Again
I should have asked for advice as to my options.
I have been treated for non-Hodgkins Lymphoma and would like to begin enjoying part of the year with nature. With FEMA I could live where I want in America and deploy when they want me. With the City I have to work the entire year, excepting 2-3 weeks of vacation. It seems to me that when Ronald Regan started the Windfall Elimination Provision he was not thinking of folks with $1200 SS benefits and a $60,000 401K.
Several years ago the Portland SSA only WEP’d City employees who were enrolled in the State Retirement System (PERS). At first, they told me that because it was a 401K, that I would not be WEP’d. Then one of the agents began questioning that my $60K 401K should be considered as a pension. It went all downhill after that.
They did say there was one option where I could take payments from the 401K and they would WEP me each month, only 1/2 of those payments. Sounded great; .i.e. I withdraw a small amount (interest generated only) each month and get to keep the entire 401K principle. But that is not what they meant. They insist that I take payments out of the principle and of course that will exhaust the 401K fairly soon.
One point of contention is that the Portland SSA office says I only paid into SS taxes 19 years. The national SSA people say I paid in between 29 to 32 years. I think the confusion is that yes, I do have 40 quarters but not all the years I worked paid into SSA taxes. My friend and I compared my SSA statement (earning years) with the SSA table that shows the “Significant Earnings” of all the years. It looks to me like I only have 23 years of paying SS taxes, while SSA in Portland says I only have 17 years. Formerly they said I had 19 years. It is crazy and causing incredible stress.
Again….tbankj you
The small amount of withdrawal from the 401k is a prescribed amount – not your choice as to how much to withdraw. The chart for withdrawals is located at this page: https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605364
It is true that the maximum WEP impact is 50% of your pension amount – whether a deemed pension that you’re not actually withdrawing at that rate (as you are not) or an actual pension, or 50% of the first bend point, whichever is less.
I work for the a municipality that has not taken Social Security taxes from my pay during the 10 years I have worked for them. As a former (tenured) Endangered Species Wildlife Biologist I am currently in the hiring process to be a Reservist for the Federal Emergency Management Administration. I cannot afford to retire and may never. But working for FEMA will allow me to use my degree and also give me part of the year off to enjoy wildlife.
The SSA has told me that when I leave the City of Portland Maine, it will immediately begin to WEP my already meager Social Security Benefits (about $1150./month) by about 40%….whether I draw on my 401K or not, before age 70 1/2..
They say this is because Ithe City has matched my 401K weekly payments and so they consider my $60,000 401K a pension. I have sat down with the SSA office here in Portland Maine repeatedly on this and all we do it fight. They insist they will WEP me as soon as I leave the City.
I currently draw spousal benefits of $766 but I want to begin drawing my benefits of about $1150.
What can I do?
Is it true that SSA cannot WEP me if I do not draw on this 401K after I leave the City at my age of 67 years ? Must I begin drawing at 70 1/2?
Thank you very much
Robert King
https://itsaboutnature.smugmug.com
My understanding is that until you begin withdrawing the pension (in this case a 401k) you do not have WEP impact. However, with a 401k, things may be different since it’s not a traditional “pension” where you decide a starting date and distributions come to you on a monthly basis. It’s all about eligibility and entitlement to the pension – eligibility means that you have met all of the tests to receive the pension except for applying for it. Entitlement means that you are eligible and have applied for it. Perhaps with a 401k since it’s available to you in any amount at any time after you leave employment, WEP applies immediately.
My apologies for not having a better handle on this – I suspect that SSA is probably right on this matter.
Thank you for your prompt response.
I’m 21 and about to sign a lease for my first place. I’ve been contributing to my 401k at work for about a year and have $2300 sitting in my account that hasn’t been taxed yet. I would like to withdraw the entire balance and end any contributions to my 401k as money will be much tighter now that I’m no longer living at home – what is the best way for me to go about doing this? Would like to have an extra $1000 in my savings as I’m paying for 6 months of rent up-front in order to get the place I wanted. Thank you very much!
First of all, congratulations on getting your own place! That’s a benchmark moment that you’ll remember for a long time to come.
As a financial advisor my purpose is to help people make good decisions about money. One of those decisions is between having things now versus having funds available for later. In your case, if the only way you can afford to have this particular place is to wipe out your savings, then I’d have to say it sounds like you have things out of balance. The money you’ve been putting aside in the 401k is not for renting a home today – it’s for living off of when you’re retired.
Having $1,000 set aside in a savings account is a great idea – as an emergency fund, to keep you from having to go into debt (for example) when life throws curves at you. In order to build up this amount in your savings, I’d suggest that you temporarily stop making 401k contributions, sending that money into your savings account. Once you’ve built up $1,000 (or whatever makes sense) in the savings account, go back to making 401k contributions like before. Trust me, in 40 years you’ll look back on this and be very happy that you didn’t drain the 401k account.
With regard to your comment about money being tighter now, you need to make choices about your expenses that includes regular saving – because if you don’t you’ll definitely regret it later. There are lots of resources on the ‘net to help you cut living expenses, seek them out and use them.
wife is 58 and the company where she has 401k plan terminated her and has her as a contract employee, working for an employment agency with no benefits and reduced wages and hours. is she able to withdraw 401k funds without the 10% penalty.
Yes, she should be eligible to do a withdrawal without penalty based on the age-55 rule.
I just turned 59 but was diagnosed with a rare immune disorder last November. Will I be able to withdrawal funds without a penalty to cover all my medical bills. I see option 10, but not sure if that’s an available option for me. I am currently on short term disability and it looks like I will be switching to long term disability in 2 months.
You should ask your 401k administrator to be sure.
Hi, I’m leaving my job because I’m moving to a different State. I want to cash out my 401K. I understand if I open an IRA I can cash some of my 401K and left some money in the IRA without penalties? I’m 40 years old.
Any money that you remove (take in cash and don’t rollover to an IRA) will result in tax and penalty. The money that you move (rollover) to the IRA will not be taxed or penalized for the transfer.
i will be 50 in a few months, due to a accedent my husbad was in and now staying in nursing home, i have been unable to work. our daughter wants to go college, can i pull out money to pay for it? how or what might be my taxation tate would i have?
You’ll need to talk to the plan administrator to determine you can make a withdrawal without penalty.
The tax rate will be ordinary income tax – any withdrawal you make will simply be added to your other income and taxed using the standard tax tables.
Hello, have you ever heard anyone taking funds from their 401k account, without penalty, to help refinance an upside down mortgage? If so what paperwork is required to avoid the penalty? This would be a financial hardship as the property is extremely upside down and the monthly payments were about to go from $2500/mo the over $4000/mo.
No, I’ve never heard of it, although it’s plausible. You should ask your 401k administrator if this is an option for you.
I will be 55 in two weeks and I think I will be laid off next week. Will I have to pay the 10% penalty if I take part of my money out of my 401k. Also is there a limit on how much I can pull out?
Leaving employment in the year that you’ll reach age 55 is one of the exceptions noted in the article. You should be able to withdraw funds penalty-free.
There is no limit on the withdrawal. Just realize that you will be taxed on anything that you withdraw as if it were ordinary earned income.
I’m a 40 year old divorcee who’s unemployed and attending college full time. I was rewarded half of my ex husbands 401k and really need to borrow from it in order to make ends meet while continuing my education. What would you advise in this situation?
If you rollover the money from the 401k into an IRA in your name, you may be eligible to withdraw money from the IRA penalty-free for qualified education expenses. See the article 19 Ways to Withdraw IRA Funds Without Penalty for more information.
I’m turning 55 next year and I was laid off from the job that I had 401k with 6 years ago. so can I take my money out without being penalized.
Did you reach age 55 before you left the job? If not, then unless you meet one of the other exceptions listed in the article, you will be penalized if you withdraw money from your 401k.
i am 5o and recently quit my job and moved to another state and now am working for someone else. Can i withdraw money from my previous employers 401k and use that to purchase a home and not pay the additional 10% penalty? or do i have to pay the 20% tax and 10% penalty no matter what?
Unless you meet one of the exceptions, you will owe the 10% penalty. All of the withdrawal will be subject to tax.
I have an outstanding loan on my 401k…I’m about to leave my job and I want to cash out my 401k. Will my outstanding loan balance, plus to 20% penalty br taking out of my vested balance before I receive a check?
The loan amount and 20% withholding will be deducted from your balance. You’ll have to claim the entire amount (including the loan) as income on your tax return for the current year, and if you’re under age 59 1/2 you’ll likely owe the 10% penalty in addition to the tax.
I have an annuity fund with my Union. A year ago I became disabled after being diagnosed with cancer. I can not work and I am currently collecting Social Security disability payments. My Union claims I still can not make a hardship withdrawal and any type of withdrawal from my account. I orginally planned on returning to work but further diagnosis will probably have me out of work permanently. I am strapped owing tons of money in medical expenses (3 surgeries, chemo, radiation and now a bone marrow transplant). I’ve gone through my savings as i have very little income coming in from SS. Is there anything I can do?? I need my money!
It’s up to your union, they are the administrators of your annuity.
I am retired from my work. I am 57 years old and I want to withdraw for my 401k for a down payment for a house. Can you tell me how to avoid any penalties? Or should I roll over to IRA, to avoid penalty?
If you retired during or after the year you reached age 55, you can withdraw from your 401k without penalty, for any purpose. Otherwise, if you left employment before age 55 you will need to wait until you are age 59 1/2, meet one of the other exceptions in the above article, or rollover the funds to an IRA meet one of the exceptions listed in the article – 19 Ways to Withdraw IRA Funds Without Penalty.
jb
Previous company eliminated my job last year (55 years old) now I’m 56 and want to pull money out (401K) for a down payment on a home.
Will I get the usual 20% tax on the amount and avoid the 10% penalty?
Can I pay the 20% taxes at the end of the year and factor in the tax savings by owning a home to save a little $$$.
Could I move the funds into an IRA and not be taxed at all for a home loan?
Thanks for any help…
If you move the money over to an IRA then the age 55 exception would no longer apply to a distribution in cash. So if you want the money to make a down payment, you’ll need to make a withdrawal of the funds from the 401k account to avoid the early withdrawal 10% penalty.
jb
I’m almost 61 and will be retiring next year at 62. My question is can I take approx $18,000 from my 401k now to pay off a high interest HELOC?
This is a question for your 401k administrator.
BTW-we are allowed in-service distrubutions.
Hello. I have read all the questions and responses, but am left confused. If one is over 59 1/2, I thought there would be no 10% penalty for taking a small disbursement from a 401K, that the withdrawal would be taxed as ordinary income, which I imagine would be added to the “wages and other income” line on the tax form. But after reading here, my confusion lies in the question: does one ALSO have to have left the job? If so, then is there still a penalty even the only requirement met is the age requirement? Thanks.
I don’t think an inservice distribution after age 59 1/2 is subject to penalty. But I would ask your 401k administrator to be sure.
I am over 55 and my company is considering terminating our 401(k) plan. I understand the “age 55 rule” for withdrawal without 10% penalty, but what options would I have if the company terminates the plan? Will I be forced to roll-over the money into some type of IRA? Can I withdraw money without the 10% penalty?
Thanks,
JEK
I believe the rule specifically indicates that you must have left employment with the sponsoring employer in order to take advantage of the age 55 rule. So in that case, you would not be eligible to withdraw funds penalty-free unless you left employment with that company.
Hello, asking a question for a friend. Back in March, he took out all of his 401k and was taxed for pulling out the full amount. He was 59 and a half at the time. Because he was already taxed, does he need to file taxes for it?
If he was 59 1/2 years of age when he took the distribution, the 1099R that he receives will reflect that the distribution was a normal distribution. Generally a normal distribution will be included on the individual’s tax return. If there was withholding on the distribution, that amount withheld will also be reflected on the 1099R form that he receives – and that amount will be entered on the tax return as well.
jb
Hello I had a question regarding cashing out my 401k due to losing my job. My 401k was closed by my former employer so I decided to cashout the money. I paid the 10% penalty for taxes of over 12 grand. When trying to do my 2015 taxes its asking me to pay. almost 9 grand. What are my options to avoid the large penalty?
If more than 60 days has passed since you took the distribution, you really don’t have any options, unless one of the exceptions listed in the article applies to you.
On the other hand, if it’s been less than 60 days, you could open up an IRA and contribute the distribution to the IRA. This would remove the distribution (or part of it) from your income and reduce the tax and penalty.
jb
My son had money in a 401K from a former employer. It was rolled over into another plan (Great West, I think). The amount is less than $4000.00 but he is charged a little over $10.00 each month. He wants to withdraw and place it in an IRA at his bank. One of the forms he has asks if he wants taxes taken out. Should he have these taxes applied and will he be subject to the 10% withdrawal penalty? Are there any options to avoid the penalty?
If he rolls it over to an IRA there will be no tax on the distribution, and no penalty as well. As long as he leaves the money in the IRA there is no tax and no penalty. If he takes some of it out, it will be taxed and possibly penalized.
jb
I will be 59 1/2 in 3 months, but have been out of work for 8 months and have gone back to school. My unemployment ran out a month ago, and I have no income…my 401k was at about $11,500 on 12/31, but I’m sure that it’s down a couple thousand since then due to the market’s poor performance. Having that extra 10% penalty when I am so close…would I be better off taking a loan on it?
I’m not sure you can take a loan if you’re not employed by the company any more. If it was me I’d exhaust all other possibilities, borrowing from family or friends, or whatever you need to do to avoid the penalty. 10% is $1,150 of the balance you had in December, that’s an awful high price to pay for the money.
Best wishes to you – jb
I was enrolled on 401k plan without my knowledge. I talked to my manager and said that it was on default. Now I want to get that money out it is less than $300 but I talked to my manager and said that I will have to pay taxes. Is this true? What can I do?
Yes, you will have to pay tax if you withdraw the money, but when the money was withheld you didn’t have to pay tax on it, so it’s all fair at this point.
jb
I am 58 and have been unemployed for over 6 months. Can I take money from my 401 to cover house payments without penility
You’ll need to discuss this with the 401k administrator to see what options you have available.
If I withdrew from my 401k and with held 30 percent would i still owe anything at the end of the year besides the 10 percent early withdrawl, if i only make 30000 a year?
It depends on how much you’re withdrawing from the 401k, your filing status, and your use of standard or itemized deductions, among other things.
I have a 401k retirement plan with my company but I had to put a hold on adding more money due to my job slowing down and have recently found out that my account has been loosing money is there anyway to withdraw the remaining amount regardless I’ll take any penalty I would rather loose some money rather than all of it.
You’ll need to talk this over with your 401k administrator. Bottom line is – it’s highly unlikely.
jb
Hi my name is Randee, im thirty years old and I would like to know if it’s possible to withdraw 5 or 6 hundred dollars out of my 401k to be paid back in full within a few weeks, just until I receive my tax return. Im willing to pay the ten percent interest if needed. I’ve been with Wal-Mart for over ten years. Can you help me please?
You should talk to your 401k administrator, most likely the HR department, to find out if this is possible.
jb
I am disabled and withdrew funds from ira. what do i do to get the exemption from penalty. how do i prove disability how to i prepare this on taxes
You need to be considered disabled by the IRS definition. From IRS’ Publication 590:
Hi. I’m 49 and wanting to withdraw my 401k from a previous employer. I understand there will be a 10% penalty. Is there also a 20% off the top? Then at tax time do I have to pay another penalty? 30% total? Something about your tax bracket? I just want a round about figure to hold back if I get hit with a 3rd penalty. I have no clue what our tax bracket will be this year with my husband retiring last September 2015. Do I hold back an extra 1000.00? More? Less? HELP……Thanks
Without knowing your overall income figure there is no way to give you an estimate of how much you should withhold.
The amount of tax on the 401k withdrawal will be based upon including that withdrawal along with all of your other income for the year, and then applying the tax brackets to the result (after deductions and exemptions). Then there is the 10% early withdrawal penalty on top of the overall tax.
In many cases the 20% withheld at the time of the withdrawal may be enough to cover the tax and the penalty – and in other cases it is not. It all depends on your other income and withholding.
jb
Can the 10% penalty be waived for payment of the Federal Parent Plus loan for a childs college tuition
I doubt it – you will want to ask your 401k administrator to be certain, but in general there are no education exceptions on 401k’s.
jb
I have a 401K from a previous employer I left 20+ years ago. I have not contributed since then. After 59 1/2, can I withdraw without penalty while continuing to work at my present employment?
Yes, the two qualifications for regular withdrawal with no penalty are: age 59 1/2 and no longer employed by that employer. Exceptions may allow other withdrawals, but you will have met those two at your age 59 1/2.
jb
Thank you for the explanation! I believe the answer is NO but – If I open a Roth IRA account in 2015 with $100, and 4 years later in 2019 I convert $25,000 from a Traditional 401K to the Roth account, can I withdraw the $25,000 penalty free in 2020 (5 years after opening the Roth IRA account) ?
You’re right, the answer is no. There is a separate 5-year period for conversions – which you can read about in the article TWO 5-year Rules for Roth IRAs.
jb
My wife has cancer. The treatments and surgery have eaten all our savings and checking. She no longer works. She is under 40 can we cash out her 401k with paying the fees to help us get even again ?
You’ll need to talk to the 401k administrator to see what your options are.
jb
We just want to pay our house down with my husbands 401k from a previous employer. He is 48. Is there anything we can do to withdraw it without penalty? Can he put it in my name, his wife, because I turned 59 in September last year?
Unfortunately not. 401k accounts are specific to the individual and cannot be assigned or given away without closing the account. Closing the account will cause the owner of the account (your husband) to recognize the distribution and incur tax and penalties.
jb
In exactly one year, I’ll be 591/2. I have an old 401K through an employer I left in 2005 to which I’ve made zero contributions since 2005. It has grown very slowly but very steadily to $11465. In one year, I want to roll half of it into an IRA and cash out the other half. I realize it will be taxed. The reason for cashing it out is I want to plump up my liquid emergency fund. (BTW, I am currently employed with a nonprofit with a 4% employer match 403B which I don’t intend to touch, and I hope to continue working for another 10-12 years.) What do you think?
If it’s solely for your emergency fund, why withdraw the money before you need it? You’d only be needlessly paying tax on the money and giving up tax deferral on the growth by doing so. You could just leave the whole amount in the 401k or rolled over to an IRA until you need it for some future emergency.
jb
I am 67 and want to take a loan out of my 401k to purchase a condo in January. I plan on returning the funds when I sell my present home. Will there be fees involved?
Most likely no fees will be involved, but you should ask your 401k administrator to be certain about it.
jb
Hi Jim: Been reading lots of you replies to the readers questions and learning a lot from you. Question: If a person leaves their employment after age of 55 and withdraws money from their 401K, will that person be able to do that say for 2 years, stop withdrawing, get another job and probably withdraw when they turn say 64?
This, like most 401(k) strategies, depends upon the administrator’s rules for the plan in question. Many times there is a restriction that withdrawals must be done either via an annuitization of the plan (over your lifetime) or one-time withdrawal from the plan. You’ll need to check with the administrator of the plan to determine if you can make withdrawals as you describe. There’s nothing in the law to prevent this, it’s all up to the plan administrator.
jb
Question… My husband and I are in the midst of purchasing a home. By only putting 5% down, I found out today that our PMI could be as high as $388!!! I was estimating that it would be around $180. In order to put more money down on the house and avoid the high PMI for 10 years, we’ve contemplated taking money from our 401k. I’m not sure which would be the lesser of two evils…paying money each month towards the PMI for 10 years or withdrawing money from our 401k to lessen (or avoid completely) the amount of PMI we will be paying each month. Thoughts? TIA
Why not hold off and save up the extra?
I don’t think taking money from a 401k is a good idea, if you can even do so. If you’re still employed by the employer with the 401k then it’s unlikely you’d be able to withdraw from it anyhow.
jb
You can typically borrow money from your 401K for the purchase of a primary residence. Your overall payment will be higher (likely in the form of a paycheck withholding) but the interest charged will be put back into your 401K.
Hello,
I am only 25 but I have made some bad financial decisions. I finally found a good paying job but I need to buy a car to get there since its far. I have 2 credit cards I need to pay down to better my score and secure a car loan with a down payment. I need all of this within 8 weeks. I am leaving my job now and the HR lady asked me what I want to do with my 401K.. I only have about 9.5K in there and I understand taking it out may leave me with only half of that? But even getting 5K would pay out all of my credit cards. Then I could save for the down payment with the remaining checks/bonuses I will get in Dec/Jan. Do you think withdrawing all of the 401K is my best bet?
Thank you!
No, I don’t think that pillaging your retirement fund and paying 30% or more in taxes and penalties is a good idea.
I think you should consider every other alternative besides cashing out the 401k. Can you borrow a car for a while? Can you carpool, or ride the bus? Can you come up with other ways to increase income, such as taking on a boarder, selling things, taking on a second job? Can you move closer to the job?
These and all other options should be considered. In fact the 401k should just be considered off-limits. You mentioned that you had made some bad financial decisions that brought you to this point – don’t make another bad decision in trying to get yourself out of this condition. It seems that if you have saved $9,500 then you’ve not made all bad decisions! Give yourself some credit!
jb
I need to try and find a creative way to tap into my 401k. I already maxed out my loans and I have no general withdrawals available. Was hoping 2 things might be possible: 1) IRS rule 72(T) or 2) Roth IRA in 401K withdrawal after 5 years even though I wont be 59 when 5 years hits in 2016. I would be willing to pay any penalty.
If you’re still employed by the employer you’ll need to talk this over with the administrator of the plan. If you’re not employed by the employer and you left after age 55 you can avoid the penalty for withdrawal via the age 55 exception.
jb
Hello.Im 57 and have a 401k with my employer and also a sep ira witch I control my self.Problem is I have cancer and doing chemo and am able to work part time with no other income. Can I cash in one of my accounts now befor I die to pay off my house and bills with out penalty would also like to take my kids on a vacation
If you are no longer employed by the employer and you left employment after age 55 you should be able to withdraw from the 401k without penalty. Otherwise, if your unreimbursed medical expenses are high, you could withdraw funds from your SEP-IRA to cover the excess of those expenses (above 10% of your adjusted gross income).
jb
Found to be 100% disabled Total and Permanent through the VA (May 2014), but not rated unemployable. Having problems at work and want to retire. Can I get my 401 funds without penalty?
If you have total and permanent disability by the IRS definition, you should be able to access your 401k funds without penalty.
jb
I left my job in May of 2014 do to a package deal and have been out of work every since I’m 46 and want to know can I cash out my 401k
Of course, but you’ll owe tax on the distribution, and if you do not meet one of the exceptions you will also owe a 10% penalty on the distribution.
jb
Hoping you can help. I’m 49 and leaving a job of 20+ years due to company changes and extreme stress in my job. In leaving, I’ll make approx $25,000 less per year which means I must use the $200k in 401k & ESOP I’ve accumulated at this job to pay off bills so I no longer have as many bills. A few questions:
1) Can I legally have a property (commercial or residential) built using the 401k, sell it to make a small profit and not have to pay tax or penalty for using the 401k?
2) Is there anything I can do to save the thousands I’ll lose in taxes and penalty and still be able to use the funds to pay off bills shortly after withdrawing?
Thank you for the help as I’m lost with what to do but I know I must use the funds in order to make ends meet going forward.
cjr
Unless you meet one of the exceptions as listed in the article, you will be subject to the 10% penalty. In all cases you’ll be subject to ordinary income tax on the withdrawal.
jb
I am 55 yrs and my employer is laying us off permanently. Can I withdraw ALL of my employer/employee 401K funds? (to pay off my existing home mortgage) and is it correct there will be no penalty but taxed? is this a smart thing to do? or is it best to roll it over to an IRA? I do plan on working somewhere else till age 65.
Yes, you can withdraw your entire 401k and only pay ordinary income tax, no penalty. The problem with such a move is that (especially if it’s a large sum) it will be taxed at a much higher rate than if you took it out in smaller amounts over many years.
Whether this is a smart move is entirely dependent upon your circumstances, the amount of money, and your tax structure.
jb
I’m 55 and about to voluntarily leave Employer A for Employer B.
1) Would I be able to withdraw from my Employer A 401k without the 10% penalty while employed by Employer B?
2) Let’s say I then voluntarily leave Employer B after 6 months and remain unemployed, would I be able to now withdraw from my 401k at both Employer A and Employer B without having to pay the 10% penalty?
Thanks.
1) yes, there is no requirement that you’re not working, only that you’re not working for employer A in this case.
2) yes
jb
Hi jim….I worked for a bank for 30 years survived numerous merges through out the years took a package in 2008 officially retired from bank but too young to really retire. At one point my Datacenter was outsourced to ibm and I put all my 401k money into there 401k plan..long story short I will turn 55 next year and have some financial problems. ..can I start withdrawing from this account without getting wacked with penalties? ..I know there
Is some kind of 72t plan?..I’m maxed out with credit cards and looking into bankruptcy as we speak..hope you can help me thank you jim
You might be able to set up a Series of Substantially Equal Periodic Payments, commonly known as a 72(t) plan. Otherwise you will likely owe penalties on the distribution, as you were not 55 years of age when you left employment, and you’re under age 59 1/2.
jb
How can I find out if I had a 401k plan at my previous job?
Your best bet is to contact the previous employer and ask to talk to the 401k plan administrator. If you have no way of contacting them (if they’re out of business, for example) you can try contacting Social Security, as they have records on all 401k plans that have properly recorded their forms with SS.
jb
I was an employee at BOA. I recently quit the company but didn’t know I had a 401k plan till I got a letter in the mail. How can I go about withdrawing the funds? I’m only 25 years old.
You’ll need to contact the plan administrator to see about withdrawing funds from the plan.
jb
I am planning to buy my first home and contact my 401K administrator. It appears that the 401K does not have home buyer’s loan program (has only general purpose loans). Can I withdraw my 401K as hardship? Or are there any exemptions to withdraw to buy a first-time home?
Hardship is up to your plan administrator, you’ll need to check with them. There is no first-time home purchase option to avoid the penalty.
jb
I am currently 59 1/2. If I contribute to a 401K to get the employer matching funds, how long do I have to wait to take distributions?
You’ll need to check with the plan administrator on this. Not all plans allow distributions while still employed, and each plan can have a different vesting schedule for employer matching contributions.
jb
I have an outstanding 401k Loan. I will be retiring after I am my 60 years old. I will still have a loan balance and it won’t be paid off and I don’t plan to pay if off when I retire. My question is, will I have to pay the 10% penalty on the balance because the loan was taken before I was 59 1/2 or will it be based on my current age?
I believe that your non-payment of the loan would constitute a distribution on the date that you leave employment. Otherwise, the loan is not a distribution before that date – you’re expected to be paying it off through regular payroll deductions. Therefore, if you are over age 59 1/2 when you leave the employer and elect to take the loan proceeds as a distribution, there should not be a penalty on this distribution.
jb
I work for a company decided to discontinue our 401K plan. This means they no longer contribute, I am no longer able to contribute to it or borrow against it. It seems like a waste to let this money just sit there until I retire, and this no longer resembles the plan that I and my co-workers signed up for. Can I move my money to a different type of qualified plan without quittting? My employers (somehow, still named as the administrators) say no.
Thanks,
Thierry
It’s up to the administrator – but if the plan is actually discontinued, you should be eligible to move the money out.
jb
Hi, I’m 37 years old, I’ve been with my job for 8 years. There seems to be some financial concerns going on there. I was wondering if I can cash out my 401k?
Most likely you won’t be able to cash out while still employed at that company. If you leave the company you may be able to cash out or rollover the money to an IRA.
jb
I have a 401k with a previous employer that I took an early retirement from. I’m working for another company now. Can I take money from the previous 401k at age 59 1/2 even though I’m still working for another company?
Cathy – yes, you can withdraw money from a 401k at age 59 1/2 or older if you are no longer working for that employer. Your current employment status with another company doesn’t factor in.
jb
I am 57 and have small amount in my 401k from I job I left 24 years ago. At the time I rolled it over to Merrill Lynch. Do I need to wait until I am 59.5 to pull anything out of it without penaly?
If the money was moved to an IRA at ML, then you’ll have to wait until 59.5 to withdraw without penalty, unless you meet one of the other exceptions. The age 55 exception only applies if your money is still in the 401k account.
jb
Hi Jim,
I’m 27 and just started working for an engineering company that offers 401k. However, I don’t see myself working for this company past 7 months because of their low pay. Should I still sign up for their 401k plan?
Thanks
It depends on 2 things: company matching funds, and vesting schedule. If the company vests you immediately in matching funds, then it’s probably a good idea to participate. If there is a long vesting schedule, such as 2-5 years before fully vesting in the matching funds, then you might look elsewhere or just not participate in this plan. However, if the matching funds are generous you might still participate, because you may decide that you’ll stay with them longer than you anticipate, and either way you’re not necessarily giving anything up.
If it was me, I’d go ahead and participate regardless, especially if there are matching funds.
jb
I’m 54 years old & disabled. Can I take money out of my 401k for a car without penalty?
If you are totally and permanently disabled you may be able to take money from your 401k without penalty. The purpose of the funds is irrelevant.
jb
I’ve been unemployed for a year and have a 401 K at my previous employer. The value of my current 401k fully vested is $90,000. I have no income this year. If I incur any type of medical expense, no matter how small, it will be higher then my income which is 0. Does that qualify me for the 10% penalty exemption if I cash out my 401k?
I would ask your 401k administrator about their rules for such withdrawals to be sure, but that sounds like a situation where the exception may apply.
jb
I am an adult child beneficiary for my Mother who recently passed, I am looking to take a lump sum payment from the 401K. I am subject to the 20% tax?
Yes, any withdrawal in cash from a 401k plan will be subject to the mandatory 20% withholding.
jb
My husband is using some of his 41k to get a mobile home do we have to take taxes out or can we clam that on are taxes at the end of the year when we file???
Generally when money is withdrawn from a 401k plan the withholding of 20% is automatic. Talk to the 401k administrator to find out for sure.
jb
I’m 64 yrs old. My wife messed up on the taxes on the house. They were sold and I was giving an eviction notice. The people have a deed to my home said I can buy it back. But the company said I would have to quit my job to get the money from my 401 k. I have more than enough money to cover what there asking. Can my job do that to me. Been there almost 40 yrs. At one time I put 200,000 of my own money from my other job into my 401k. So how can they do this. Help me please…
My email was wrong..
Unfortunately this is a downside of rolling over money into a company 401k – the only way to get the money back out is to quit the job.
jb
Hi JB,
I am 28 yrs old and have a roth 401k from my previous employer. I left two years ago to join a startup that went bust. I have taken out two payments from the available funds, but would like to completely close the account. Can I do this?
Thank you
William – Yes, you can close the account. Keep in mind that any money in the account that represents growth on your deferrals will be subject to tax and a 10% penalty for withdrawal prior to age 59 1/2, unless you meet one of the exceptions.
jb
I am 65 yrs old and my company has laid me off as of Dec. 1. I have approx $26,000 in my 401k with my current company. Does it make a difference if I roll it over into a tradtional IRA while still employed or after my last day of employment. Also, can I roll over my entire 401k balance of 26,000 into the IRA?
Kathy – Depending upon your 401k administrator’s rules, you may not be eligible to rollover the funds while still employed. Either way, if you’re rolling over the money into an IRA there would be no tax on the rollover, whether before or after your termination. There is also no limit to the amount you can rollover.
jb
My former employer went out of business. How can I get my 401k funds? I want to transfer the proceeds into a rollover ira, but I don’t know where to contact the plan administrator who was the owner of the business.
You must contact the administrator of the plan. If you have a statement from the plan, presumably some company was holding the accounts – contact that company for information.
jb
I Have become disabled. Can my husband take out his money from his 401 without penalty
I believe it’s only the individual named on the 401k account’s disability that can be used as an exemption. He should talk to the 401k administrator to find out for sure.
jb
Hi. I turn 59 in october.. I was laid off in June 2015 at which time i had outstanding 2 401k loans totaling 5000. How much tax can i expect to pay on that amount if i do not fully repay the loans this year? Would i still be eligiblefora hardship loan at 59 1/2??
Dr –
Without seeing your tax return there is no way I can answer that question. The outstanding loan will be considered a distribution, and will be considered as ordinary income on your tax return. Since you left the company after age 55 there should be no penalty on the distribution.
Regarding a hardship loan, you should talk to the 401k administrator about this availability. It’s unlikely since you’ll be over age 59.5 (why take a loan, just take a distribution).
jb
After a divorce I want to buy a new house. Our old house is not been sold yet.
For the down payment I need money until the old house is sold.
Can I borrow money for a few months from my 401k?
Winnie – talk to your 401k administrator to see about taking a loan from the account. It should be allowable by law, but each plan has its own rules.
jb
I’m 60, and want to use a portion of my 401k to purchase solar panels for my primary residence. Will this still be subject to taxes?
Any withdrawal from a 401k of deferred money (money that was deducted from your pay before taxes) will be taxable as ordinary income. The purpose of the withdrawal after age 59.5 doesn’t matter.
jb
Can I use a portion of my 401K to purchase real estate for investment and keep it under my 401K ?
ES – that’s highly unlikely. Real estate in a tax-deferred account is typically only allowed in a self-directed IRA. Ask your 401k administrator to be sure, but it’s highly unlikely that they’d go along with that.
jb
I am over 59-1/2 and would like to withdraw a large sum of my 401K and put it in a different type of account where I have access. Will the IRS collect taxes on this as if it’s income?
Michelle – unless the account you’re moving the money to is an IRA, the withdrawal will be taxed as income. If you are rolling over the money to an IRA, only the withdrawals that you take from the IRA will be taxed as income.
jb
Hello I have a question to asked. I’m a Filipina, i have a american boyfriend who died last 2013. He put me on his 401k as beneficiary. now i’m wondering how I can get the money without paying a huge tax. Thank you so much
You’ll need to talk to the 401k administrator to find out how to withdraw the money from the account. All withdrawals will be subject to tax just like any other income, there is no way around this.
jb
Can I withdraw from my 401k without penalty if I leave my job yet go to work somewhere else?
If you’re under age 59 1/2 you must meet one of the exceptions to be able to withdraw money penalty free.
jb
I am 60 and have retired from my job. I rolled my 401k from my work plan into another 401k with a financial planner. I would like to buy a new home. Is there anyway to roll money over from my 401k on to this new home without having to pay income tax on it?
Lynn –
If your contributions to the 401(k) plan were deducted from your taxable income when you contributed them to the account, when you withdraw them from the account you will have to pay tax on the withdrawal.
jb
I’m worried about having to pay next year when I file for taxes. I had to take a hardship withdrawal out of my 401K, this past month. How much will I have to pay?
Candace – without seeing all of your income information there is no way to answer that question for you. Of course that’s not the sort of thing that is usually shared in a public forum like this.
jb
Can I take money from my 401k without penalties if I want to buy a car?
Debbie – Only if you are over age 59 1/2. Younger than that, withdrawals from a 401(k) plan would be penalized if the withdrawal doesn’t meet one of the exceptions.
jb
If the company you worked for is not in existence anymore, how do you find out who managed your 401k? It’s been about 15 years
Debbie – You’ll need to trace the company or the administrator of the 401(k) from the last known information. If you have an old statement from the retirement plan, start with that and contact the company administering the plan at that time.
jb
I plan to retire at 67. Can I pull out of my 401K to pay off all bills and the house without being penalized>
Manuel – once you have reached age 59 1/2 and leave your job, you are eligible to withdraw funds from your 401(k) for any reason without penalty. There will be tax on the withdrawal, but no penalty.
jb
How can borrow from my 401k
Carol – you’ll need to contact your 401(k) administrator to borrow from your 401(k) plan.
jb
How do I find a 401k from an old job?
Tracie –
Contact your former employer and ask for the contact information for the 401k plan administrator.
jb
Hi JB – I was working in the U.S for several years, during this time I was contributing towards a 401k retirement fund, unfortunately at my recent VISA interview I was denied a renewal of my VISA. I have recently come back to the U.K. I was wondering if you had any advice or new of the next steps to withdraw this? Not having a visa in the states now will not allow me to contribute to this so I was looking to withdraw.
Many thanks in advance for any information you could provide.
Kind regards,
Daniel
Daniel –
If you’re under age 59 1/2, you could rollover the funds to an IRA, or if the plan administrator allows you could leave the funds where they are. Otherwise, if you withdraw the funds as cash (and don’t rollover to an IRA) you will be subject to tax and a 10% penalty for early withdrawal.
If you’re age 59 1/2 or older you can withdraw the funds, either over the course of several years or all at once depending on the amount, paying tax (but no penalty) on the proceeds.
jb
Thanks for your reply Jb. Good to know.
I have a 401K from a former employer (approx. 10 yrs ago) that I am no longer contributing to. My new employer offers a 401K, which I am contributing to. They also offer stock purchase. Can I roll over my old 401K into the new company stock purchase?
Jeff, you’ll want to ask your current employer’s 401k administrator if they will accept a roll-in of funds from a prior employer’s 401k account. By law it is allowed, but every 401k plan is different – so some allow roll-ins while others do not.
jb
Hi.
I worked in USA (have SSN) built up 401k then moved back to UK leaving 401k as is. Now my company has gone out of business and 401k has been put in a cash holding account by administrators (still with 401k protection). There are no different fund options just this cash account.
I’m far from retirement and cannot seem to find an IRA that will allow rollover for foreign national. Would you have any thoughts as I would prefer not to take the 10% + 30% cost of distribution?
Brett –
I’ve not heard of this, but since your situation is a bit unique that’s not hard to believe. Have you checked with Vanguard? If so, then perhaps I can do a bit more investigation to see if there is another way to accomplish this rollover for you. I’ll be surprised if Vanguard is not able to help you out.
jb
Can 401K funds be withdrawn for the purchase of a primary residents without having a tax penalty? I am seeing other sites that say I can do this. (Maybe the rules/laws have changed since your post above on Sept 8, 2014.) Also, is there a one-time home purchase limit?
Not a 401(k) – an IRA withdrawal for use in purchase of a first home can be an exception, but not a 401(k).
jb
Hurt back not on disability can’t work can I get 401k money with out penalties?
You should check with your administrator.
How do you withdraw your 401k if your disables. I mean how do I go about doing it?
Chris – you’ll need to contact your 401(k) administrator for information about the process involved. It will be slightly different for each 401(k).
jb
OK I forgot the link: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Tax-on-Early-Distributions
Thanks Clyde.
I need to review IRC Sec 72 – I was certain that those items were allowed based on my most recent re-reading.
Appreciate the heads up.
jb
Higher education expenses, First time home buyer, and Health Insurance Premiums expenses do not qualify for penalty free distributions from a 401k plan.
Here is an IRS chart that identifies what distributions can be penalty free from a 401k and from an IRA.