Question about 401k withdrawals

[Captain Save]

Can someone not take out 401k withdrawal at all when they're currently employed?

obviously I know about the 10% penalty, and I know I can't take out any money out of my 401k unless it's a hardship withdrawal. But I always thought that decision was my employer's. I thought the employer had a rule that you can never take money out even if you're willing to pay the 10% penalty.

Now I'm being told that no 401k plans allow you to withdraw even if you're willing to.

Can anyone confirm this?

[msomnipotent]

My gut reaction was, "How can they possibly deny you your own money???" but upon further review, it depends on what is written in the plan guidelines. I have made several loans with my plan for personal reasons, and I know a friend cashed hers out just because she wanted the money. My husband cashed one of our 401ks out and we paid taxes and a penalty. No one tried to stop us. I've never heard of an employer refusing. Is this a new rule that I haven't heard about?

[creditcardfree]

My guess it is in the plan documents. Each employer is different. They may not have a provision for providing 401k loans. But some employers definitely do allow for borrowing from 401k's.

Ask your employer for the plan document(s). It's all spelled out in that.

[TexasHusker]

It essentially is up to the employer, based upon their plan document. It is unusual that a plan would allow withdrawals. They want to have leverage over you to keep you around for a long time.

The 401K, and employer provided health insurance, are two key leverages that employers have with their employees.

What you often CAN do is a 401K loan. I borrowed $50K from mine once to help fund a real estate purchase and it worked great.

[Captain Save]

My guess it is in the plan documents. Each employer is different. They may not have a provision for providing 401k loans. But some employers definitely do allow for borrowing from 401k's.

Ask your employer for the plan document(s). It's all spelled out in that.

I'm pretty sure my employer doesn't allow withdrawals which i found out a while ago.. but this "advisor" that the employer hired told no 401k plans allow withdrawals.

I know about the loans

[Nutria]

I'd say that the "cost" of tax-deferred savings and (effectively) employee bonuses is illiquidity.

Also, if 401(k) withdrawals were allowed, then a lot more people would be taking money out of these expensive funds, and dropping the money in Vanguard.

[TexasHusker]

I'd say that the "cost" of tax-deferred savings and (effectively) employee bonuses is illiquidity.

Also, if 401(k) withdrawals were allowed, then a lot more people would be taking money out of these expensive funds, and dropping the money in Vanguard.

The biggest cost is that of opportunity: What could you have produced with those monies, versus investing in the items listed in HR's little brochure?

[Nutria]

The biggest cost is that of opportunity: What could you have produced with those monies, versus investing in the items listed in HR's little brochure?

Hookers and blow, of course!!

[disneysteve]

if 401(k) withdrawals were allowed, then a lot more people would be taking money out of these expensive funds, and dropping the money in Vanguard.

Except that wouldn't make much sense because of the 10% penalty for early withdrawals.

I've never heard of being allowed to take money out while still employed by the company except for specific hardship criteria.

It's a RETIREMENT account folks. The money should stay there until you retire. It shouldn't be borrowed. It shouldn't be cashed out early unless some dire catastrophe befalls you. Getting a new car, taking a cruise, paying for college, or remodeling your kitchen don't count as dire catastrophes.

[Nutria]

Except that wouldn't make much sense because of the 10% penalty for early withdrawals.

I'm thinking more of "withdrawing for the purpose of rolling over".

[disneysteve]

I'm thinking more of "withdrawing for the purpose of rolling over".

Rollovers are fine, but you can't do those while still employed by the company. That would be nice though.

[Like2Plan]

It depends on the plan rules.

I just noticed that my old plan just offered a hardship in service withdrawal through jan 2018 due to Hurricane Irma (if you or a family member are in the designated area). Normally a hardship withdrawal would stop additional contributions for 6 months (which would result in a loss of the match), but they are waiving this rule in this instance.

Some plans allow after tax contributions and in service withdrawals of the after tax funds. (This is how some folks fund their mega back door Roth accounts.) After reaching 59.5, some companies allow in service withdrawals. It just depends on the rules your company has set up.

DH's current company allows anyone to withdraw funds at any time in this order:
1. after-tax contributions (if any)
2. rollovers (if any)
3. employer match after you reach age 55 (only amounts in which you are vested)
Then, if you are over 59.5
4. pre-tax contributions (if any)
5. Roth contributions (if any)
(If you are under 59.5, then you have to meet hardship tests for 4 and 5)

It is a good idea to check the rules of your specific plan.

[Like2Plan]

Also, if 401(k) withdrawals were allowed, then a lot more people would be taking money out of these expensive funds, and dropping the money in Vanguard.

Some 401k's are terrible, but I have been pretty pleasantly surprised with 3 out of 4 of DH's employers 401K investment options. I am hoping the tide is changing for 401ks in general.

DH's current 401K investments have ER's between .03 and .05 (Institutional rates). I'm not even sure Vanguard Admiral funds are as low for similar investments. (Plus, the 401K may have more legal protections than an IRA in certain situations. )

[scfr]

Rollovers are fine, but you can't do those while still employed by the company. That would be nice though.

I researched this awhile ago and what I learned is that some plans do allow "In-service 401k rollovers" ... it just depends on how the plan is written. I do not know how common this is. (My employer's 401k plan does not. If I had to make a guess I'd guess that most plans don't, maybe because the people who write up the plans have an interest in having the funds not be moved?)

OP, if you are interested in rolling over (rather than withdrawing) your 401k funds, I suggest you look at your plan documents.

[msomnipotent]

Wow, I'm really surprised to hear that some employers don't allow withdrawals. We can request withdrawals online on both of our retirement accounts. It has been that way with every employer we have had. I would probably just have to kiss our old 401k goodbye if the other plan didn't allow rollovers or withdrawals. They were charging so much in fees that we were losing money every month.