If you need money for an emergency or large expense such as buying a home, it is strongly recommended that you look for another source before tapping into your 401(k). Withdrawals and loans from your 401(k) plan come at a HIGH cost. Not only will you pay a penalty or interest, you will fall behind on your retirement savings and may never recover.
Although taking money out of your 401(k) is not recommended, here are the two main ways to get money out while you’re still working:
Hardship withdrawals. These are cases of “immediate and heavy financial need,” such as the purchase of a primary residence; medical expenses; disability; college tuition for you, your spouse or children; or payments to prevent eviction or foreclosure. There are strict rules for these withdrawals AND you will have to pay a penalty of 10% if you’re under age 59 ½.
Loans. Most 401(k) plans allow you to borrow money from your account, but there are restrictions on how much you can borrow. You will pay interest, and the loan must be repaid within five years.
Check your summary plan description to see what your employer allows. Make sure you’re clear on all the rules and restrictions.
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