Need Cash? Consider 401k In-Service Withdrawals & Borrowing

No comments

As a recruiter, I see clients who also need access to funds BEFORE they find their next job and these are a few ideas. Lets first discuss the details of what is called “In- Service Withdrawal”.

In-Service Withdrawals

General Rules: You may withdraw amounts from your account while still employed by an employer under the circumstances described. Certain withdrawals are subject to regular federal income tax and if you are under age 59 ¹⁄ you may also be subject to an additional 10% penalty tax. You can determine whether you are eligible for a withdrawal, and request one, via internet access or by calling the PG&E Benefits Center.

Rolling Over Your 401(k)

As long as the participant is younger than age 70 ½, an in-service distribution can be rolled over to an IRA. A direct rollover would avoid the 10% early withdrawal penalty as well as the mandatory 20% tax withholding. Refer to your SPD for more information & possible restrictions on rollovers/withdrawals.

Because a withdrawal permanently reduces your retirement savings and is subject to tax, you should always consider taking a loan from the plan instead of a withdrawal to meet your financial needs. Unlike withdrawals, loans must be repaid, and are not taxable (unless you fail to repay them). In some cases, as with hardship withdrawals, you are not allowed to make a withdrawal unless you have also taken out the maximum available plan loan.

Note: The Plan Administrator reserves the right to modify the rules regarding withdrawals at any time, and may further restrict or limit the availability of withdrawals for administrative or other reasons, in its sole discretion. All participants will be advised of any such restrictions, which will apply equally to all employees.

Borrowing from your 401(k)

Should you borrow from your 401(k)? Maybe you lose your job, have a serious health emergency, or face some other reason that you need a lot of cash. Banks make you jump through too many hoops for a personal loan, credit cards charge too much interest … and suddenly, you start looking at your 401(k) account and doing some quick calculations about pushing your retirement off a few years to make up for taking some money out.

It’s your money, and you need it now. But take a second to see how this could adversely affect your retirement plans.

Remember: Borrowing from your 401(k) may result in the following:

  • Losing growth potential on the money you borrowed
  • Repayment and tax issues, if you leave your employer

Rather than withdrawing or borrowing you could get a part time job. If that is the case reach out to us at TechStaffer.

Sources: