Withdrawing money from a 401k

[couponhead]

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

Suppose I put money into a 401k this year (2009) and later in the same year find that I need that money and want to take it out. Can I do so by paying taxes on it as if I had never contributed in the first place? Or will I pay a penalty?

 

[ecmst12]

You will pay a hefty penalty if you withdraw the money before you reach retirement age.

 

[terminatedone]

take a loan. you pay yourself back and are not subject to any penalties

 

[TinkerBelleLuvr]

take a loan. you pay yourself back and are not subject to any penalties

The downside of these loans are that if you are terminated, you must be in a position to pay it back 100% within 60 days of termination; if you do not pay it back, it is subject to be tax an additional 10% penalty. There are certain exceptions, but they are far and few between.

 

[cbg]

And not all plans provide for loans. They may; they are not required to.

You might also want to be aware that the Federal government STRICTLY regulates the withdrawals from 401k plans. Not only will you pay tax AND a penalty; you can only take the withdrawal AT ALL if it is for limited reasons. Loans may or may not be limited depending on the plan; withdrawals can ONLY be obtained for reasons expressly permitted by the Federal government and, as indicated, you pay a penalty as well as the tax for it.

 

[needto1]

Withdrawing Money From 401K

What about the money you have your company hold out of your check each payday? I understand restrictions on the money you gain (interest, etc) and
matching contributions your company makes toward your 401K, but the money you have them hold out of your check is your money. When your watching your 401K dwindle away to nothing in the current inviroment/market
you want to move into something where you won't loose all of it. How can they legally keep you from rolling the money you contribute into a bank IRA or CD?

Thanks
TJ

 

[cbg]

Yes, that money too.

When you agree to the withholding, you are agreeing to the rules of the plan, which are HEAVILY regulated by Federal law. As long as the employee is still working for the sponsoring employer, money in a 401k plan cannot be moved out of the 401k or withdrawn except under very limited and regulated exceptions. An employer who allowed an employee to violate this limits would, when audited, (and ALL 401k plans are audited regularly - it's not if but when) would have jeopardized the entire plan for everyone. The employer can legally keep the employee from rolling the withheld 401k monies into a CD or an IRA because Federal law says the employer MUST have that restriction.

When and if the employee leaves the employer (quits, is laid off, or is fired) then he can do anything he wants with the money. Leave it where it is, roll it to another qualified plan, or cash it out (cashing out will require the employee to pay both a penalty and taxes, but it can be done at that time). Until then, money once in a 401k plan stays there.

 

[needto1]

Well,,,,,I appreciate your time, I understand more now about the reason they don't allow employees to pull the money out of the 401K. I don't like the answer but I understand it. I don't think they make that point very clear when the 401K plan is offered. Probably in the fine print.

Thanks again, this is a great forum. Several of my fellow employees had the same concerns I did about just sitting back and watching what the market is doing to their savings.

At least I can pass this on to them and they can try to come up with a different plan of action.

T.J.