Amounts you contributed from your compensation to a 401(k) plan are typically not accessible until you terminate employment, reach age 59 ½, or become disabled. However, many employers allow for a special type of distribution while you are employed, which is for a severe and immediate need (typically falling within a very specific list of situations). If taken, these distributions may still be subject to early withdrawal penalties, are not eligible for rollover, and cannot be repaid to the plan.
The withdrawal itself must be limited to the amount needed (although it may be adjusted to include taxes and penalties).
Please note that while the IRS permits employers to allow for hardship withdrawals in 401(k) plans they provide to employees, they are not required to offer this option. The Summary Plan Description (SPD) for your company’s 401(k) can provide more information on what types of withdrawals your specific plan allows. Additionally, you can see more information about withdrawals you may be eligible for by logging in to your Betterment account and navigating to the withdrawal page (alternatively, you can click here).
It is important to consult IRS guidelines or a financial professional regarding early distributions.
Related Articles