Different Ways To Withdraw Funds From Your 401(k)

What are the Different Ways to Withdraw Funds From My 401(k) Account? 

There are a few different ways to withdraw funds from your account depending on the features offered by your plan; keep in mind that there are a few rules for withdrawing retirement funds and potential tax implications to consider.

Hardship Distributions 

Savers may be able to withdraw funds if they can show a substantial financial need. The IRS permits withdrawals for certain types of "substantial financial need," but generally, this type of withdrawal is meant to cover medical expenses, funeral expenses, and similar emergencies. Unlike a loan, a hardship withdrawal must not be paid back.

In Service Distributions

Simply put, it is a distribution that a participant may take from a retirement plan while still employed. Some 401(k) plans allow you to withdraw from your contributions to your 401(k) while used for any reason, often beginning at (but not before) age 59 ½. You may also be able to withdraw your funds that have been rolled in from an outside retirement account before age 59 ½.  Please note that while the IRS permits plans to allow for in-service distributions, 401(k) plans are not required to offer this option. Your 401(k) plan’s Summary Plan Description (SPD), found in the 'Plan' tab in your saver portal's 'Documents' section, can provide more information on what types of withdrawals your plan allows. 


Loan Distributions

A 401(k) loan is a way to borrow against your retirement account while agreeing to repay the balance, plus interest, within a specific timeframe. Loans generally have a term of 1-5 years, although your plan may allow a longer-term if you use the loan to purchase a principal residence. Your loan must be repaid through payroll deductions or paid out in full through a lump sum payment.

Participants can take out a "loan" from the vested balance of their plan. The IRS limits a loan amount to greater than $50,000 or 50% of the participant's vested account balance. There may be restrictions in the plan, such as how many loans a single participant can have outstanding or how many loans a plan can have at any given time across all participants. Learn How to Request a Loan.

Required Minimum Distributions

RMDs are the minimum amount you must withdraw each year from a retirement plan after reaching age 72. However, as is stated on the IRS website, Roth IRAs “do not require withdrawals until after the death of the owner.”

Leaving Your Company 

Vestwell will receive data regarding your employment status from your employer. Typically this information is received on the payroll following the date you leave your company. Your portal will be updated at that time, and you will be given options to either distribute your full account balance or rollover your balance to another retirement account. Click here to learn more about what to do with your funds if you have left your company. 

We hope this information is helpful, if you would like further assistance please contact us at help@vestwell.com