Beginning in January of 2020, under the federal government’s “economic hardship” rule, 401K loans are going to become considerably easier to access. That is to say, employees that are still currently employed by the company will be able to make withdrawals.
Below are the conditions that would qualify an employee to do so:
What Qualifies for Early Withdrawals From 401(k) Plans
The Internal Revenue Service (IRS) says these types of economic hardship qualify for early withdrawals from employer-sponsored retirement plans:
- Medical care expenses for the employee, the employee’s spouse, dependents or beneficiary
- Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments)
- Tuition, related educational fees and room and board expenses for the next 12 months of postsecondary education for the employee or the employee’s spouse, children, dependents or beneficiary
- Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence
- Funeral expenses for the employee, the employee’s spouse, children, dependents or beneficiary
- Certain expenses to repair damage to the employee’s principal residence
However, BMG Money has covered the general lack of retirement savings in the United States before. The general consensus among financial experts is that Americans are under-prepared for retirement. So is this early access truly a positive?
Early withdrawals face a 10% tax penalty (or 7.5% under certain conditions). In many cases, a loan with a carefully managed repayment plan is a much better idea – leaving your retirement entirely intact. This protects your financial future.