401K based on company performance

[rppearso]

What is the name of your state (only U.S. law)? AK

I have a 401K with my company and they just instituted a new policy where they will determine the percent matching in september 2010 (0-4%) based on the companys performance but we as employees have to start putting money in January 2010 so its basicly a gamble if we will get anything at all and if there is no matching I can think of alot better things to do with my money than a 401K. Also if you are terminated or leave before sep 2010 you get nothing but cant get your money back out of the 401K without penalties.

Is this even legal? I have a very hard time imagining this is even legal with the IRS otherwise we as employees could keep our money in an account and when the company decides its going to match we can then match.

 

[FlyingRon]

The money you put in a 401(k) is your money. If you leave the company, you can roll that into some other 401(k) or similar plan. You can never take money out of a 401(k) without penalty until you are at the retirement age. The company isn't obliged to match ANYTHING. So anything they do match is up to them.

You seem to misunderstand what the intent of a 401(k) is. It's a tax-deferred retirement plan, not a temporary investment account.

 

[rppearso]

The money you put in a 401(k) is your money. If you leave the company, you can roll that into some other 401(k) or similar plan. You can never take money out of a 401(k) without penalty until you are at the retirement age. The company isn't obliged to match ANYTHING. So anything they do match is up to them.

You seem to misunderstand what the intent of a 401(k) is. It's a tax-deferred retirement plan, not a temporary investment account.

Can a 401K be rolled into a roth IRA without penalty?

 

[ecmst12]

A roth IRA is funded with AFTER TAX money. So no. You can roll 401k money into a traditional IRA, but only after you leave the company. You can't just take money out at your whim, no matter what you want to do with it.

 

[anteater]

So no. You can roll 401k money into a traditional IRA....

401K rollovers to Roth IRA's are now allowed. Of course, it is a taxable event.

 

[ecmst12]

Taxes but no penalties?

 

[anteater]

Taxes but no penalties?

No penalties. Same as a rollover to a traditional IRA.

But, as you said, the hangup is being eligible to get the money out of the 401k at all.

 

[rppearso]

What can you roll a 401K into? Why can you not roll it over if you are still with the company, it is your money isent it?

 

[cbg]

Why can you not roll it over if you are still with the company, it is your money isent it?

Yes, it is your money. But you were permitted to put that money aside, tax free, for a very specific purpose and with the understanding that it would stay in the 401k as long as you were employed by the sponsoring employer. You cannot roll it over while you are still with the company because the law says so. The law says so because of the tax-exempt status of the 401k.

 

[ecmst12]

Because there are strict rules governing when money can be taken out of a 401k. You can't just take it out because you feel like it or because it's your money. Once you put it in there, there are laws that say when you can or can't get it back. You get it when you retire or leave the company and a few other specific circumstances (loans, hardship). That's it.

If you leave the company, you CAN get your money back without penalties if you roll it over into another type of retirement account. You only get penalized if you cash it out.

So basically, don't sign up for the 401k unless you are definitely ok with not seeing that money again until you leave the company or retire.

 

[rppearso]

Because there are strict rules governing when money can be taken out of a 401k. You can't just take it out because you feel like it or because it's your money. Once you put it in there, there are laws that say when you can or can't get it back. You get it when you retire or leave the company and a few other specific circumstances (loans, hardship). That's it.

If you leave the company, you CAN get your money back without penalties if you roll it over into another type of retirement account. You only get penalized if you cash it out.

So basically, don't sign up for the 401k unless you are definitely ok with not seeing that money again until you leave the company or retire.

What are the other specific circumstances as I have significant loan burdens and that money (if I could take it out in whole without penalties or tax) would get me out of my massive student loan situation. Also I have been within the skin of my teeth of being laid off would I be able to take that money without penalty to satisfy a loan burden that I would otherwise default on (there is no asset to reposses with a student loan nor can you go bankrupt on them).

Also this is off topic but does a furloughed person look the same to the government as a laid off person (as far as unemployment bennies, forclosure rules, etc) and if not do you have the right to be laid off rather than furloughed so that you can initiate the process on thoes things.

 

[cbg]

You cannot take the money out without penalties or tax. Period. Not as long as you are still employed.

IF your plan document allows for loans, you can take a loan from the 401k but you have to repay it, with interest, usually by payroll deduction. If your employment ends, the loan becomes immediately payable or else it becomes taxable at the end of the year, regardless of what you do with the balance of the money. Not all plan documents allow for loans and if yours does, the rules of the plan document, with regards to eligibility and repayment, apply.

Under very, very, very limited circumstances, all of which are set by Federal law, you can take a hardship withdrawal; however, payback of student loans is NOT one of those circumstances.

 

[FlyingRon]

You cannot take the money out without penalties or tax. Period. Not as long as you are still employed.

If you're talking about withdrawal rather than rolling into another qualified plan, it doesn't matter if you are employed or not. You always are taxed on 401(k) distributions because you were never taxed on the contributions nor the income they earn. You must always pay the 10% penalty if you're not old enough to retire (or you qualify for one of the hardships).

 

[cbg]

Perhaps I worded it badly.

There are no circumstances, short of rolling the 401k over to another qualified plan (which cannot be done as long as you are still employed by the sponsoring employer) under which you will not have to pay tax, a penalty, or both.

Will that satisfy everyone?

 

[rppearso]

Ok so since my company matching is a crap shoot I really need to stop contributing until I can get my debt burden under control, 40% of my net income goes to bills and debt but the debts get really big really quick if there is no pay check so I really should not be casino gambling in that condition. If I were to be laid off/furloughed would I then be able to remove it for a hardship without penalty but with taxes?