If your employer's plan allows it (87% of them do), you can borrow money from your 401(k) and pay yourself back, with interest. You can borrow up to half of your 401(k) balance or $50,000, whichever is less.
If you terminate employment with your company prior to paying off your loan, you have two options. Your first option is to pay off your entire loan balance within 30 days of your termination date. Please contact your Plan Administrator to request a loan payoff amount. If you choose not to pay off your loan, then the outstanding amount will be considered a taxable distribution from your account and you will receive a Form 1099-R for the year in which your loan defaulted.
You can request a Salary Deferral Change Form from your Plan Administrator.
A financial hardship withdrawal is generally allowed for six specific reasons:
- Expenses for medical care (described in Section 213(d) of the Internal Revenue Code) previously incurred by you, your spouse or your dependent or necessary for you, your spouse or your dependent to obtain medical care;
- Costs directly related to the purchase of your principal residence (excluding mortgage payments);
- Tuition, related educational fees, and room and board expenses for the next twelve (12) months of post?secondary education for yourself, your spouse or dependent;
- Amounts necessary to prevent your eviction from your principal residence or foreclosure on the mortgage of your principal residence;
- Payments for burial or funeral expenses for your deceased parent, spouse, children or other dependents; or
- Expenses for the repair of damage to your principal residence that would qualify for the casualty deduction under the Internal Revenue Code.
When you terminate employment with the company that sponsors your 401(k) plan, you may leave your 401(k) savings in your account depending on your vested account balance. Please check with your Plan Administrator on the specific dollar amount required.
If you request that a benefit payment be made directly to you, the Plan Administrator is normally required to withhold 20% for U.S. income taxes from the taxable portion of the distribution. The withheld amount is sent to the IRS. If the payment is directly rolled over to an IRA or another qualified retirement plan, there will be no withholding. Detailed information about the tax rules on benefit payments is provided when you request a payment from the plan. You will receive an IRS Form 1099-R at the end of the year reporting this withholding and the taxable portion of your payment.
When you leave employment, you have several options for your old 401(k) account. You can leave it where it is, as long as it has more than a certain minimum threshold ($5,000 is common). You can also roll it over into an IRA. Or, you may be able to roll it into your current employer's plan. Of course, you have the option of cashing it out, which is rarely a wise choice.
In some divorce cases, the court will award some or all of a retirement account's assets to the participant's ex-spouse. If this is done, the court order must meet the conditions of a Qualified Domestic Relations Order as stipulated by the IRS and the U.S. Department of Labor.
A catch-up contribution is an additional contribution to a 401(k) plan that can only be made by an employee who is at least 50 years old. Once an employee has hit the plan’s contribution limit or the annual deferral limit of $18,000 (in 2017), he or she may contribute up to $6,000 as a catch-up contribution. Most employers offer this option, and some companies also match a percentage of the catch-up contribution.
A Qualified Domestic Relations Order (QDRO) is a court order that assigns all or a portion of the benefits which would otherwise be payable to a participant under a qualified retirement plan to another person. If the court order does not meet all of the requirements for a QDRO, the plan is prohibited from paying plan benefits to anyone other than the plan participant.
You have the option of paying off your entire loan balance early. Please contact your Plan Administrator to request a loan payoff amount.
An amortization schedule is a timeline that illustrates your principal and interest payments for the life of your loan. You will receive an amortization schedule with your loan promissory note when you first request your loan.
To be fully vested means that when you leave your company, you are entitled to receive all of the money that the company has contributed to your account and any earnings on that money. (Note: You are always fully vested in the money you contribute to the plan and any earnings on that money.)
If you leave your company before you are fully vested, then you will receive only the vested percentage of your company contribution account. The percentage is based on the plan's vesting schedule.