Through plan loan features, many employers allow you to borrow up to one-half of your total vested account, up to $50,000 (reduced by any outstanding loans). If, for example, you are fully vested and have accumulated $100,000 in your 401(k) account, you could borrow up to $50,000. Generally, through payroll deductions, you repay the principal and current interest rates back to your account over a set term (generally not more than five years unless used for the purchase of your principal residence). In effect, you repay yourself. Immediate repayment may be required if you terminate your employment. If certain requirements are met, loans do not incur the taxes or penalties of a withdrawal.

Many plans also permit hardship withdrawals, usually for the purchase of a primary residence, payment of post-secondary education expenses, payment of certain un-reimbursed medical expenses or to prevent the eviction from or foreclosure of your principal residence. Qualified hardship withdrawals are subject to a 10 percent Federal income tax withholding and may be subject to a 10 percent early withdrawal penalty. If your plan so provides, you also can withdraw money without withdrawal penalties if you are medically disabled as defined by the IRS. Your plan may not allow you to make additional contributions for at least 12 months after a hardship withdrawal.

Other withdrawals taken before the age of 59 1⁄2 (for example, if you change jobs and don’t roll over your account) will generally incur the 10 percent tax penalty in addition to regular income taxes. Generally, you must begin taking minimum distributions by April 1 of the calendar year following the calendar year in which you retire or reach age 70 1⁄2, whichever comes later. If you continue to work for the employer who is the plan sponsor after age 70 1⁄2 , or if you own more than 5 percent of the stock in the plan sponsor’s company, you do not need to begin distributions at age 70 1⁄2 . Be sure to talk to a tax professional before making any withdrawal to be sure you fully understand the tax consequences. Under some plans, you may be required to commence distributions at age 70 1⁄2 while you are still working. Other plans may allow you to choose to begin distributions at age 70 1⁄2 or defer the commencement of your distributions until you retire.