New rules for 401(k) withdrawals

Taking money out of your employer’s 401(k) plan while you’re still on its payroll is about to get easier. The federal government’s new rules about “economic hardship” withdrawals from retirement savings plans like 401(k)s go into effect in January 2020.

1. Under the old rules, hardship withdrawals were limited to the amount of money you’d contributed into the plan. The new rules increase the potential pool of savings by including any employer match, profit-sharing contributions and investment earnings.

2. Employers will no longer require you to take out a 401(k) loan before applying for a hardship withdrawal.

3. You’ll be allowed to contribute to your 401(k) immediately following the withdrawal, rather than waiting six months, as in the past.

The reason hardship withdrawals and loans are allowed: there’s some evidence that knowing the possibility of dipping into retirement savings exists boosts both participation and savings rates.

The big worry is that the making hardship withdrawals easier will increase what’s known as 401(k) “leakage” which is people using their retirement plan money while employed.

 Listen I am a retirement income planner I want you to leave your retirement money alone, but I realize there might be a time that you have to tap into those savings just be aware of the consequences.

If you have questions call 320-679-5183.