Can I Get My 401(k) if I Am Vested?

by Craig Woodman

401k plans are designed to be long-term retirement savings tools, so the money is not easily accessible while a person is still employed with the company. When an person leaves employment, her contributions to the 401k balance are available to withdraw. After the employee has worked a specified number of years for the employer, any company contributions become vested, or fully available to the employee under the terms of the plan and any applicable tax laws.

Employed with the Company

If you are still employed with the company providing the 401k, it will be difficult to access that money. Most plans do not allow for withdrawals while still employed but make exceptions for hardships. Medical expenses or a threat of foreclosure are examples of hardships, but you can also withdraw money for a down payment on a first-time home purchase. Even with a hardship withdrawal, the money withdrawn is taxable as regular income, and the IRS will assess a 10 percent penalty for the early withdrawal.

Leaving the Job

If you have left employment with the company providing the plan, you can access all of the vested funds in the 401k. You do not need evidence of a hardship. If you request a withdrawal from the plan administrator, he will issue you a check, less 20 percent for IRS withholding to cover the potential tax liability. The withdrawal will be subject to income taxes, as well as a 10 percent penalty for early withdrawal, unless it is rolled into an IRA within 60 days. With a vested account, the company and employee contributions both are available at that time.

Retirement Age

Plan policies regarding withdrawals vary at retirement age when you are still employed. Most plans will allow you to begin taking withdrawals at age 59-1/2 even when still employed. Other plans may only allow withdrawals after a certain number of years of service, or may not allow withdrawals of any company contributions. Some plans do not allow for withdrawals while still employed at all.

Other Options

A 401k loan is an option if you need access to the money and are still employed. Most plans allow for loans up to a certain percentage of the vested balance. Borrowers pay interest to themselves for the use of the money, but this interest is often less then the employee would earn if the money were invested in the plan. A problem with 401k loans is that if the borrower leaves employment for any reason and does not repay the loan within 60 days, the loan balance is considered a withdrawal, and taxes and penalties will be payable at that time.

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