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In an emergency, you may need to tap those funds, but getting money out of your company’s 401(k) plan can be especially tricky before you reach the official distribution age of 59 ½.
While you are employed by the company that offers a 401(k), you usually havean opportunity to access savings under certain hardship conditions. Thedrawback however, is that qualifying for this provision can be difficult. Just asthe IRS has its list of qualifying financial hardships (medical expenses ordisability), individual plans often do as well. That means you must qualify underboth sets of rules, which may be more difficult.
I am sure the need for a car is a very personal hardship for you but that would not qualify under the IRS standards so Im not surprised that your company plan does not allow it either. However, there may be other options.
Not every plan allows non-hardship withdrawals. If yours does, you have anopportunity to take money out of your account and redistribute it as you see fit.Generally the best bet is to roll the amount into an IRA. That way you avoid taxes,and you have a larger range of investment options, usually with loweradministrative fees. Rollovers made directly to the owner of the 401(k) must bereinvested in a qualified plan within 60 days or be faced with a 10% penalty.
Now, once the money is in an IRA you would be subject to the IRA withdrawl rules and fees but it would be easier to take money out of an IRA than your company 401K.
If you’re in a bind, a 401k loan may be your only remaining option. A loan from your401(k) allows you to borrow against your savings. Some use restrictions similarto those for hardship withdrawals. The loan must be paid back, usually withinfive years, and loans cannot be rolled over into an IRA. However, if you leave acompany and still have an outstanding 401(k) loan, you’re oftentimes requiredto pay it back in a short amount of time, usually one to two months.
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