How to Obtain a Distribution of 401k Funds

Federal law regulates the distribution of 401k funds. Certain conditions must be met before you can gain access to the assets contained in your 401k account if you want to avoid taxes and penalties on the money you've built up.

Instructions

Difficulty: Moderate

Things You’ll Need:

• 401k plan
• Fund distribution qualification(s)

1. Check out the particulars of your policy through the account administrator at your place of employment. To obtain a distribution of your 401k funds, you'll have to meet "distributable event" requirements as dictated by the terms of your 401k policy and federal revenue law.
2. Request a distribution of the money in your 401k if your employment with the company is terminated or otherwise ceases. Leaving the company where your 401k account is held is considered a distributable event, though you're not required to take the money. In fact, it is often a better long-term investment to leave it and let it grow.
3. Have your funds distributed to you when you reach the age of 59 1/2. The IRS stipulates that this is the age you have to reach before you can get your 401k money with no penalty.
4. See what distribution options are available to you if you retire early, especially if it's for health-related reasons. Both disabilities and retirement qualify as distributable events.
5. Use the money in your 401k if you're in an emergency situation, such as facing medical bills you have no other way to pay, or if you can't secure financing for your first home by any other means. In addition to personal disability and long-term injury, home finance and medical expenses are both considered exceptional circumstances, though you may have to pay penalties.
6. Set up an annuity program to obtain a distribution of your 401k funds early with no penalty. What you'll have to do is divide the balance in your 401k account by the number of years remaining in your life expectancy, according to actuarial tables. The quotient represents the amount of money you'll have to receive from your 401k plan each year (there are penalties for adjusting it).
7. Have an estate attorney help you if you need to get a distribution of 401k funds due to the death of the account holder. There may be options available to reduce federal estate taxes on the money accrued in the plan.

Tips & Warnings

• Consider a rollover of your 401k funds into an Individual Retirement Account (IRA) offered through a brokerage, if you qualify. This strategy can help you maneuver your 401k funds into an IRA while avoiding taxes.
• You'll have to pay a 10 percent penalty, in addition to regular income tax rates on any money you obtain from your 401k without meeting distribution qualifications. This can significantly reduce the amount of your payout.