401K withdrawl

[Bastekk]

What is the name of your state? Utah

My mother has terminal cancer and currently is on a short term leave from her work. She has been with the company for 30 years and is fully vested. She would like to take $20,000.00 out of her 401k to help pay expenses and medical costs incured by her illness. She has a loan from her 401 k that is 5 years old, and has a balance of $795.00. The company that manages her 401k will not let her draw any money out of her account. Since she is not working they will not let her make a loan on the account either. If She were 59 and a half they would let her withdraw money, but since she is not they will not let her take any at all out. If She were to die, they would pay the money to my Father. Is there any course of action that She can take now to make them give her ,her money ?

 

[KLP1]

401k withdrawal

That depends. The plan document for her 401(k) plan is going to govern the rules of the plan. So, if the plan document won't allow for an in-service withdrawal, then she can't have one. However (and I am speaking in general terms here, not definitively on her specific plan) she may be eligible for a hardship withdrawal. Hardship withdrawals are not easy to qualify for, but her mounting medical bills may qualify. What people sometimes don't understand is that the IRS sets specific instances where people can get to funds in the 401k, and they make it hard on purpose. If it were easy to get to that money, everyone would do it and we'd all be working until we were 90 because we'd have no money at retirement.

Now, understand that if she does qualify for a hardship withdrawal, she will have to pay taxes on the amount of withdrawal, as well as a 10% penalty if she is not 59.5 years old.

Her only other option is to terminate her employment. She can then take withdrawals through termination, still incurring taxes and penalties though. Hope this helps.

 

[Beth3]

Assuming your mother's employer follows the "safe harbor" rules for 401(k) Plans, it sounds as though she would qualify for a hardship withdrawal under the medical emergency exception. You or your mother should speak directly to the employer about that. Any funds withdrawn would be subject to federal and state taxes but I believe the 10% early withdrawal penalty is waived for a medical emergency.