401k withdrawal denied

[vermont67]

What is the name of your state? Vermont

Today I was told I could not borrow from or withdraw any money out of my 401k. Our company changed who handles our 401k last year. In the other plan we could borrow from. We were never told of this change. I've been in the 401k for the 3 years and never have borrowed from it.

Do I have any opitions?

 

[Betty]

You'll need to read your summary plan description. It may indicate you cannot borrow from the fund or only under certain circumstances.

 

[vermont67]

Can't you withdraw from your 401K and pay a 10% penalty and have it added to your taxable income?

 

[cbg]

That depends on how your plan document is written and on the specific circumstances.

IF your plan documents allows for loans, you can take a loan and pay it back gradually by payroll deductions. But not all 401k plans allow for loans. If yours does, you are still held to the allowances of the plan document itself.

The circumstances under which a withdrawal can be made from a 401k plan are STRICTLY limited by Federal law. And when I say strictly, that's exactly what I mean. Not all plans allow for withdrawals at all and those that do can ONLY be taken for reasons that are EXPLICITLY permitted by Federal law. It cannot be taken for just any reason, regardless of whether you pay the penalty or not. Trust me, you WILL take the penalty AND pay tax EVEN IF the withdrawal is pemitted by law.

Because of the pre-tax feature of 401k plans, they operate under VERY heavy restrictions from the Feds and the plans are examined regularly to see if they are in compliance. For your employer to allow you to take a withdrawal that does not meet the restrictions of both Federal law and any plan restrictions that might also exist, would be to put the entire plan in jeopardy. The Feds take this VERY seriously.