as defined by the IRS. That said, some 401(k) plans do come with hardship provisions, including for unreimbursed medical expenses, education costs, or purchase of a principal residence. In the event of a hardship, a 401(k) plan may permit penalty-free withdrawals so long as certain conditions are met.
To be clear, not all employers offer an in-service withdrawal feature within their 401(k) plans. Each plan is different and has its own rules. You can tell if your 401(k) plan does by reviewing your plan documents. What’s more, your plan documents will spell out any potential limits or conditions that may apply to an in-service withdrawal.
Approved Triggering Events
As we talk about the ins-and-outs of an in-service withdrawal, you may wonder about what the approved “triggering” events are. Some of these include:
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Beyond triggering or hardship events there are reasons employees take in-service withdrawals. Yet many employees have no idea this type of withdrawal can even be an option for them.
Reasons for Non-Hardship In-Service Withdrawals
Many retirement savers opt for an in-service withdrawal for several reasons. Some may want to preserve their wealth. Some plan participants might worry about holding onto or protecting what they accumulated. Others may want to ensure their retirement income will last as long as possible. And as for others? They may simply want more options and flexibility. An in-service withdrawal may give them a greater range of potential strategies and financial choices than they currently have in their 401(k) plan.
Photo Credit Ben White