401k Retirement Plan Withdrawal Rules
The goal of contributing towards a 401k retirement plan is for you to be able to retire with a good solid income. This is proven by the fact that 401k plans allow you to take out a certain amount (maximum limit of $17,500 in 2014) from your Gross Income and contribute it towards the 401k retirement account, allowing it to grow tax-deferred.
However, do you have the option of withdrawing this money before your retirement? What if you need cash for an emergency such as death of spouse, large medical bill or a home refinance mortgage? We suggest that you make withdrawing money from a 401k as your last possible option.
Rules Governing 401k Withdrawals
- Most 401k retirement plans do not allow you to withdraw money unless you are facing some kind of a financial hardship. This is why some 401k withdrawals are also known as "401k hardship withdrawals." The above mentioned reasons such as death of a spouse (which is beyond human control) or a large medical bill are valid financial hardships.
- Most employers set 401k withdrawal rules with guidelines set up by Internal Revenue Service. Therefore, if you have an immediate need for cash (supported by an important reason), then you are eligible to make 401k withdrawals. Here are some of the reasons that allow you to make 401k hardship withdrawals:
1) Large medical bills for you, your spouse or
Economic Growth and Tax Relief Reconciliation Act of 2001 and 401k Hardship Withdrawals
Thanks to the reforms brought about by the Economic Growth and Tax Relief Reconciliation Act of 2001, 401k hardships are:
- NOT eligible for rollovers (into an IRA, etc)