The 401k plan is retirement plan develop by federal government for the benefit of the employee. It is a simple, convenient retirement plan that delivers significant benefits while you are on the job and it enables you to build personal savings for your post-retirement life.
While 401k retirement plans are designed as a means for saving for retirement, there are certain circumstances that allow you to withdraw money from your 401k plan before you retire.
Loans: Some 401k plan allows you to take loans against your investment in the 401k plan but you will have to pay it back with interest. Each company has its own set of rules for issuing loans and they often require that loans can be taken if there is a serious emergency, paying hospital expenses, for preventing foreclosure of house, funeral expenses, marriage of daughter, or for higher education of children. But before applying for loans you must check your plan to see if there are any provisions for loans.
Hardship withdrawal: If you have no other options of getting money for certain large expenses, you can draw off money from your 401k retirement plan. If you need money for purchase of home, payment of certain medical emergency costs or for paying college tuition fees of your children you can withdraw money from your retirement plan. But such hardship withdrawals are subjected to income tax and possibly IRS penalties.
Distribution upon termination of employment, death or disability: Upon termination of employment, death or permanent disability most 401k plans allows you, or your beneficiaries to have the option of taking cash distribution or rolling over your account balance into a rollover IRA account or another qualified investment plan that will give you more returns. If you opt for cash distribution, 20 percent of your account balance will be deducted as income tax and 10 percent as penalty tax for early withdrawal.
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