Finally! Your 401(k) Questions Answered!

These questions are adapted from information provided by David Wray, President of the Profit Sharing Council of America, www.psca.org.

Can I withdraw money from my account while I am still working?

Most plans offer loans that allow you to borrow money from your 401(k) account, but you have to pay it back with interest.

If you fail to pay back the loan it is treated as if you had withdrawn the money. The loan balance will be subject to the 10 percent early withdrawal penalty and counted as current income.

If your plan does not have a loan provision, you may be able to qualify for a severe financial hardship withdrawal. According to the IRS a hardship withdrawal includes the following:

  • A down payment on a primary residence
  • College tuition for you or your dependents
  • Non-reimbursed medical expenses
  • Preventing eviction or foreclosure from your home

Some companies are more lenient than others. Because of the complexity of this issue, you will need to reference your plan document or ask your Human Resources representative.

 

Can I stop contributing if I feel I can't afford to?

Most plans allow you to stop contributing at any time though employers are not required by law to do so. Some plans may require specific percentage contribution for a full plan year so be sure to check your plan rules.

 

What happens to my 401(k) account balances if I choose to leave or am fired from the company?

First, remember that it usually takes five years to “vest” in the money contributed by your employer. So don’t lose out by leaving your job too soon.

Your options for distribution are the same whether you voluntarily leave or are terminated. If your account balance is more than $5,000.00, you can leave your money in the plan. To avoid a penalty, your vested account balance can be rolled into another 401(k) plan with your new employer or put into an Individual Retirement Account.

 

How long can my former company hold my account balance from my date of termination?

There is no quick, general answer. There are four factors that affect the timing of your distribution:

  • The 401(k) plan itself may provide a time frame that should be laid out in your plan document or summary plan description.
  • Your distribution cannot be processed until after the plan’s next valuation date. The valuation date is the time when the plan determines the account balances of participants. The Plan’s administrator or the company’s Human Resources representative will provide you with the plan’s evaluation date, but companies can determine account balances daily, monthly, quarterly, semiannually or even annually.
  • How your money is invested can affect how long it will take for you to get your distribution. While most investments can be liquidated quickly, a few, such as some real estate investments, may take longer.
  • Processing your paperwork after the valuation date can take a few days or a few weeks depending on how your plan is managed.

It is important for you to know that your company wants you to have your money just as soon as you do. The company is responsible for and must pay fees on your account balance for as long as your money remains in the plan.

 

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