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Think before tapping your 401k

February 05, 2016

Retiring Your Way


Think hard before tapping into your Employer Sponsored Retirement Account balance

One of the features that make retirement plans so attractive is that your money may not be completely out of reach should an emergency need arise. Many employer plans allow for loans that are completely tax free if repaid as agreed. (Interest payments will be required, but they will be credited to the account.) In a major emergency, a hardship withdrawal may be permitted, subject to income tax and, usually, a 10% penalty as well.

Accessing your Retirement Account funds should be carefully considered.


At first glance, retirement account loans may look particularly appealing. After all, you make those payments of principal and interest to yourself. However, if the interest that you pay is less than your borrowed dollars would have earned in the plan, you will slow the growth of your retirement nest egg. Moreover, you pay with after-tax dollars—replacing your original tax-deferred contributions.

Loans must be repaid in no more than five years (15-year terms are allowed for loans to purchase a home). If you leave your job before a loan is repaid, you’ll have to pay it off, or the open balance will be considered a premature withdrawal subject to income tax and penalty.

Potentially more serious yet, the burden of loan payments may make it impossible to continue your Retirement Account contributions which also means the serious loss of potential earnings. Keep in mind that not all plans offer plan loans. If a loan is not an option, some plans may offer a “Hardship withdrawal” option.

Hardship Withdrawal?

It’s not easy to make a hardship withdrawal from your retirement account and not all plans offer a hardship withdrawal option but if your plan does offer a hardship withdrawal, you must show an “immediate and heavy financial need,” (As defined by the IRS) for:

Medical care that would be deductible under IRC 213(d) for the employee, the employee’s spouse, the employee’s dependents, or the employee’s primary beneficiary under the plan; Costs directly related to the purchase of a principal residence for the employee; Payments for tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary education for the employee, the employee’s spouse, the employee’s children, the employee’s dependents, or the employee’s primary beneficiary under the plan; Payments necessary to prevent eviction from the employee’s principal residence, or to prevent foreclosure on the mortgage on that residence; Payments for burial or funeral expenses for the employee’s deceased parent, spouse, children, dependents, or the employee’s primary beneficiary under the plan, or expenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under IRC 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income).

You also must show that you have no other resources reasonably available to meet these costs. This means that you first must fail to qualify for a plan loan if your plan offers a plan loan option. Once you take a hardship withdrawal, you will be barred from contributing to your plan for at least 6 months after the receipt of the hardship distribution.

The lesson: even though life happens and your employer sponsored retirement account may offer a means to access funds in the case of an emergency, tapping into your retirement plan assets should be your very last resort.

(January 2016)
© 2016 M.A. Co. All rights reserved.

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Hardship withdrawal

Hardship withdrawal

I would like to borrow $4000.00 against my 401K account

Hi Joy, thank you for posting. We'll have a representative follow up with you soon.

Trying to get in my account on line

Hi Eric, we will be reaching out to assist you. Are you trying to log into your 401(k)? Or UBT Online Banking?

Hi, I'm trying to pull from my 401k. I'm trying to create an account but can't find an option to. Thanks for the help :)

Hi Marisa, we'll have a Retirement Plan Services representative follow up with you for assistance.

Hello I am attempting to take a loan from my 401k and seem to be having problems online as I can't continue past selecting my loan is appreciated!!

Hi Amber, we'll have someone from our Retirement Plan Services team follow up with as soon as we can. Thanks for posting.

Hello I would like to pull out my 401k ? And need help logging in ?

Hi Haley, thanks for reading and posting. Someone from our Retirement Plan Services team will be contacting you soon to assist.

I am 65 years old and would like to withdraw some money from my 401K. Could you please send me the form required?


Hi Joanna, thanks for reading and posting. Someone from our Retirement Plan Services team will be contacting you soon to assist you.

I would like to withdraw my 401k savings

I have a 401K set up with your bank through Crete Carrier Corp. How do I access my on line account information? I never received anything on how to set this up. I just recently set up my 401K through my job.
Kim Patton

I would like to have 5% taken out my check bi weekly for 401k

This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.

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