Your balance in a qualified employer plan is usually locked up until you leave the company, unless you die or become disabled first.
If the plan is a section 401(k) or section 403(b) plan, you may be able to get at your money early if you face financial hardship. You must prove an immediate and heavy financial need - to pay medical bills, cover a down payment on a home, or avoid being evicted, for example - to qualify for a hardship withdrawal. You also have to show that you don't have another source for the cash - that your savings are depleted and you're unable to borrow from a bank. The IRS imposes other restrictions, too, and it's up to your company to decide whether to permit hardship withdrawals and, if so, under what circumstances. A section 457 plan may permit distributions when a participant is faced with an unforeseeable emergency. Contact your employer to see if you qualify.
Even if your plan permits hardship withdrawals, you're not home free. Hardship distributions received before age 59 1/2 are subject to the 10 percent early distributions penalty. The money will also be taxed in your top bracket.
You can get your money when you leave the job, but if that's before the year you reach age 55, you have to worry about the 10 percent early distributions penalty. Note, however, that the penalty is waived for the following reasons:
- After your death
- Because of your disability
- As part of a series of roughly equal payments based on your life expectancy or the joint life expectancy of you and a beneficiary
- To the extent you have deductible medical expenses that exceed of 7.5 percent of your adjusted gross income, even if you don't itemize deductions
At any age, you can avoid the penalty on a 401(k) payout by rolling the funds into an IRA.
If you receive a lump-sum distribution from your 401(k) when you leave the company and you were born before 1936, it might qualify to be taxed using the 10-year averaging method.
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