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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Family Law
Satisfied Customers: 110387
Experience:  Experienced attorney: Family law, Estate Law, SS Law etc.
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I have money in my 401k plan with my previous employer.

Customer Question

I have money in my 401k plan with my previous employer. Their plan states that when you terminate you can't request any disbursement until after 5 years of separation. Is this legal? I'm trying to take out some money for a downpayment on a house.
Submitted: 2 months ago.
Category: Family Law
Expert:  Law Educator, Esq. replied 2 months ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

Under the Employee Retirement Income Security Act, ERISA, the employer may set the terms of the retirement plan through the plan description. Early termination and withdrawal from the plan can be set up on terms as determined by the plan description and can set a specific time for withdrawal of funds (this is done so as to not financially harm the plan). Furthermore, early withdrawals from your 401K can incur a significant tax penalty if you are not of retirement age as set forth in the plan.

Legally, the employer may set a disbursement date in the plan for any early withdrawals upon separation and that is permissible as long as it is in the plan description.

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